Recently, we checked out a new idea governments are considering – programmable digital currency. It's all regulated digital, from government, constantly trackable, and should not be allocated to items not approved by government (or just with penalties). The Federal Reserve Board (the United States' central bank) explains, bureaucratically,
Potential together with your ‘digital cash’ model using programmable UTXOs would be the capability to specify spending constraints on any discrete amount of value and a greater facility to trace the provenance of any particular ‘virtual banknote.’
ALEXANDER LEE, \”WHAT IS PROGRAMMABLE MONEY?\” AT FEDS NOTES (JUNE 23, 2022)
In short, the two advantages of these central bank digital currencies (CBDCs) are the government could possibly control exactly what the money is allocated to and can trace the transactions in great detail.
In more straightforward language, we learn from Nasdaq that it can go as a result of the cereal you buy:
In terms of distributing stimulus or emergency cash, the U.S. government and Fed might have that fine-tuned control like never before. Payments might be sorted out by income level, employment status, geographical location, or a variety of other things-
And tries to purchase a restricted item – like, say, a firearm without proper background clearance – might be automatically denied.
In many different ways, programmable digital money would be a fantasy come true for economists. It is because economists believe economies are impelled by human behavior, and human behavior is driven by incentives, and all kinds of incentives could be built into digital money-
For example, fossil fuel use may be embedded with a higher VAT (value-added tax) surcharge than green energy use. Buying sugary cereal could create a little debit, whereas buying broccoli results in a small credit. And so on.
In accessory for the above mentioned, all transactions could be instantly readily available for review, or easily aggregated into \”big data\” analysis patterns. This would provide the Fed unprecedented new levels of visibility into the current state of the economy.
JUSTICE CLARK LITLE/TRADESMITH, \”PROGRAMMABLE DIGITAL CURRENCIES ARE COMING – HERE'S WHAT THAT MEANS\” AT NASDAQ (AUGUST 18, 2022)
The critical change is not that the government charges you more tax for the sugary cereal (and rewards you for the broccoli); the government could do this anyway just by taxing sugary cereal like a snack rather than a staple and keeping broccoli prices down via subsidies to farmers. Those are questions of public policy that, ultimately, voters decide. No, the critical change is rather that the government knows that you bought that cereal rather than the virtuous broccoli. It goes on your record.
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That's more or less how the social credit system works in China today.
More seriously, you may be denied a loan, based on data from the government saying you cannot afford it.
Litle notes that governments already are establishing the machinery:
The hypothetical power, visibility, and control inherent in this type of tool will prove impossible to face up to.
This is why central banks everywhere are generally running in-depth experiments, launching full-fledged digital currency initiatives, or even preparing to fine-tune and scale a prototype digital currency as rapidly as possible. China is well in front of the game in connection with this.
JUSTICE CLARK LITLE/TRADESMITH, \”PROGRAMMABLE DIGITAL CURRENCIES ARE COMING – This is what THAT MEANS\” AT NASDAQ (AUGUST 18, 2022)
Cryptocurrencies can come to look more attractive as a result. China, incidentally, has banned all cryptos.
Of course, one reason for that popularity of digital currencies (programmable or otherwise), admitted in certain industry discussions, is to provide a digital option to cryptos:
The primary advantages of CBDCs include near-instant settlement, the potential for reduced transaction costs, enhanced security and programmable payments – a new breed of automated payment. Secondary benefits like financial inclusion vary in materiality by country; while monetary policy implementation and countering the threat of stablecoins having a CBDC are not yet been established. The report suggests there's potential for a CBDC to power an alternative, regulated digital currency ecosystem that may otherwise be filled by privately issued alternatives for example stablecoins.
\”'A NEW ERA FOR MONEY': GREEN PAPER OUTLINES A DIGITAL FUTURE FOR THE POUND\” AT FINANCIAL IT (FEBRUARY 10, 2022) HERE'S THE GREEN PAPER.
Stablecoins? A stablecoin is a soundly based private currency:
a type of cryptocurrencies that make an effort to offer price stability and are backed by a reserve asset. Stablecoins have gained traction as they attempt to provide the better of both worlds – the moment processing and security or privacy of payments of cryptocurrencies, and also the volatility-free stable valuations of fiat currencies. – Adam Hayes, Investopedia (January 27, 2022)
The initial step to whatever lies ahead, of course, is all-digital currency. Just today, numerous headlines heralded growing government interest: \”Digital dollar coming? Biden signs exec to study CBDC\” (TechHQ), \”RBI's CBDC could make payment systems efficient: Deloitte\” (Business Today), and \”Biden's Executive Order Calls for 'Highest Urgency' on CBDC Research and Development\” (Yahoo! Finance), to begin with.
All-digital currency does not, by itself, create social credit surveillance and control. It merely enables them. Whether or not they are extremely enabled depends largely on choices made by the electorate.