Despite the piteous qualities that CBDCs have, almost every central bank in the world is looking to develop its own, and a few countries have already released theirs namely the Bahamas and Nigeria! See the picture below.
Right now central banks can only create money by printing them, With CBDCs, central banks can also burn or destroy money digitally which will allow for keeping inflation under control at the expense of the average citizen’s financial privacy and autonomy.
Other countries are rushing to use their CBDCs hoping to protect their national currencies from the dollar $, which is the world reserve currency. The Fed which is the central bank of the United States is under extreme pressure to come up with a digital dollar that would keep any other country or corporate currency or even a cryptocurrency like BTC, under the supreme control of the dollar.
Money and Payment: The U.S. Dollar in the Age of Digital Transformation
In January 2022, the federal reserve board of governance wrote a report name Money and Payment: the U.S. dollar in the age of digital transformation.
Beginning with the executive summary from the report, the governors state the following:
This paper is the first step in a public discussion between the federal reserve and the stakeholders about the central banks’ digital currencies.
First things first, the term stakeholders often refers to corporates and governments, but not to individuals. To be fair, the fed made an invitation through its website for US citizens to send feedback regarding the U.S. possible CBDC.
While money can be easily created, it’s a lot harder to take said money out
With the economy of the current financial system, central banks around the world, task number 1 is encouraging economic growth or keeping inflation under control.
They do this by raising interest rates in a way that borrowing would be expensive and less attractive, this incentivizes individuals and institutions to save rather than spend which lower economic growth but decrease inflation since there is less money in circulation.
or lowering interest rates in a way that it becomes cheap to borrow and makes saving less attractive, this incentivizes individuals and institutions to spend rather than save which increases economic growth but increases inflation as there is more money in circulation.
now there is one big problem with this economic model and that’s while money can be easily created, it’s a lot harder to take said money out of circulation which leads inevitably to inflation in long term.
as such, before 1971, this long-term inflation was not a problem, since back then fiat currencies were backed by gold, this puts a limit on how much money could be created in an economy because more gold needed to be acquired in order to issue more money. after 1971, right after the Bretton Woods agreement when gold standards collapsed, we have seen only a long term of inflation where the prices of many assets exploded in fiat terms while staying the same when priced with gold.
The crazy thing is that official inflation statistics didn’t show up until very recently, which means these official statistics were adjusted many times to make them seen as less severe. The funny fact that this inflation is starting to show up in official statistics means, it’s even worse than authorities are letting on.