Wednesday, April 03, 2024

Update on Digital Currencies

A few weeks ago, I published an article about money called Money Developments. Readers who want an update on what is happening around the world with digital currencies should read this article called On the Brink of Change: The Digitization of Money by Efrat Fenigson, an independent journalist.

I will give a few interesting quotes as a taste.

Stablecoins could be the way in which the US is further globalizing the dollar, spreading its adoption directly to the world’s general public in order to continue increasing its debt and encourage uptake and usage of the dollar”, says Mark Goodwin. He suggests that the politician’s outcry of de-dollarization and the weakening of the dollar are a distraction from perpetuating the dollar as the world’s reserve currency.

“While CBDCs are what people are becoming fearful and aware of, it may just be the red herring, and the real strategy of the US dollar's survival is highly regulated stablecoins (such as Tether), which can easily be programmable, even more than CBDCs, as well as seized, regulated and controlled indirectly by governments. 100 billion dollars in treasuries were already purchased by Tether, its subsidiaries and owners. Tether is positioned alongside the top 20 nation states buying debt from the US, with around one tenth of China or Japan that have a trillion dollars debt to the US”.

One to watch.
Ripple, a digital payment network and transaction protocol that owns the cryptocurrency XRP, is considered one of the most popular cryptocurrencies, and is strategically positioning itself at the heart of government financial innovation, aiming to be the cornerstone of future CBDCs. The company is in talks with about twenty governments around the world to develop their CBDCs using Ripple's technology. In May 2023, Ripple launched a dedicated CBDC platform to assist central banks, governments and financial institutions around the world in issuing CBDCs and stablecoins. To date, Ripple has partnered with six governments for CBDC pilot projects.

Promoting its platform as an infrastructure for a CBDC, Ripple advocates for government regulation of cryptocurrencies, and tries to position itself as the preferred solution for CBDC projects. Its claim to fame of being the ideal CBDC partner for governments is the combination of speed, efficiency, a sustainable and "green" blockchain network that uses little energy (compared to the Bitcoin network), and interoperability - the ability to communicate and work with CBDC solutions in other countries on the Ripple infrastructure.

In my article, I noted that governments do not have the skills to develop the technical infrastructure needed to support a digital currency. It had not occurred to me that large corporates would see this as a gap to move into and exploit, but I should have expected it. A large corporate could shift technology between countries to reduce the cost of CBDCs. Ripple is the first to have a go, but others will follow. Giving large multinational corporations authority to develop and maintain the computing infrastructure needed to operate a CBDC could create risks for economic security and privacy.

Privacy is related to anonymity.

In a discussion at the European Union Council in 2023, Christine Lagarde emphasizes a point: the digital euro will not be anonymous. Privacy will exist in the system, but not anonymity. Let’s break this up in a different way: for the banks, the key to surveillance and control is identification. The bank must know who the citizen is and verify their identity, in order to exercise law enforcement or regulations, through technological restrictions. Lagarde's claim that the technology will allow privacy but not anonymity is unfounded: apparently the central bank considers itself and the financial service providers some kind of god, since in front of them the citizen will be identified, and therefore it is not clear what kind of privacy can exist, without anonymity.

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