I understand the advantages of this for the government. It will be much easier to track and control how we spend our money and ensure that we pay every last possible cent of taxes.
It is also difficult to see what good scenarios this enables. This tech in China is being used to un-bank people who the government thinks are troublemakers. It also looks like it would enable direct-to-consumer money printing which will end poorly (but, I suppose, is better than handouts to the wealthy).
The UK government, and Western governments more generally, have a terrible history of lies about who they are going to use this sort of capability on. It starts out being sold to catch child rapists, murderers and foreign agents then a few years later we get to discover who is actually going to be targeted. The US's system of anti-terrorist laws have turned out to be for internal use and it is a stroke of justice that they are more threatening to the right wing, who championed bringing them in.
People really need to get it through their thick skulls that centralising power => your political enemies will have more power when it is their turn.
Be less concerned with the money printing, and more concerned with expiring money, making pensioners go back to work to “solve labor shortages”. Programmable money via central bank digital currencies (CBDCs) enables more granular economic control over citizens, that is its purpose.
(China’s digital yuan has/had an expiring voucher version of the currency issued)
Even considering the Laffer curve, no government today has tax rates at what empirical analysis suggests would be revenue maximizing, so not sure this is true.
What? No, the Laffer curve already describes that. And best approximations of the rate at which the incentive to shirk taxes is so high as to lower total revenue are nowhere near where rates sit now, basically everywhere.
No. The Laffer curve is about taxable income elasticity. It says nothing about the practical challenge of tracking taxes owed and actually collecting them in a cash based system as the parent was suggesting
I suppose it could be fine to include it that way... Ie. A cash based world where tax evasion is harder to detect would have higher elasticity of taxable income. It's also true that the model does not require any tax evasion at all.
In the UK that has had a functional transaction system for half a century, not that much. In the US it would be revolutionary to stop mailing checks between banks.
I suppose ideally your money can’t be stolen? E.g., if someone hacks you or something similar, the government can invalidate that currency. Plus reduced money laundering, since it’s tracked, which theoretically reduces crime and makes it easier to track.
Personally I only see physical currency being deprecated over the next several decades, considering most people don’t really care about privacy anymore (including me, to be fair).
It's 2032. Covid Alpha variant is running rampant. In an attempt to prevent Americans breaking mandatory isolation electric cars have been disabled unless authorised by your neighbourhood state leader and all non-online transactions have been blocked.
I’m not saying this is necessarily a good thing. When I say I don’t care about privacy, I mean that I don’t use VPNs, I don’t use ProtonMail, I don’t disable cookies or JS, I don’t use cash—all because I value convenience. Is this short-sighted? Maybe, but I am in a position where I (generally speaking) trust the government. That’s not true of everyone of course.
And, key here, you trust the government now. If a government you trust erodes privacy over time & then a government you don't like gets into power you're screwed.
> It will be much easier to track and control how we spend our money
Will be? will in future ? The majority of my GBP transactions are digital already - they are not pieces of paper with picture of the late Queen changing hands, they are database records, mediated by a "buy" button in the web browser, or the tap of a card onto a reader.
Yeah, over distributed databases controlled by multiple competing entities. With a single system under the government's purview, it's orders of magnitude easier for any government agency to get that data consolidated.
> it's orders of magnitude easier for any government agency to get that data consolidated.
I don't buy that; if the government (UK or otherwise) wanted a consolidated view of all transactions (at what stage: acquired, captured or cleared ?) then they could get it from a low double-digit number of sources.
Building their own payments processing system is hard, perhaps as hard as getting feeds from all of those.
The sheer amount of cash hoarded by tax evasion, and the very public effort in creating this central government backed blockchain attest to the contrary. For all we can speculate, we will have to wait and see. I dread this possible future and hope it doesn't come to pass...
Knowing everyone else is playing by the same rules has value to me.
I'd limit property purchases and political finance to domestic -earned wealth. You'd be able to import wealth, but you pay tax on it and its person of ingress goes on record. Too much of this country is bought and bribed with dark money.
I'd apply HMRC/money-laundering checks at 1k, not 10k to stop people working for cash. We've had some building work this last year and about half the trades and suppliers offered "cash prices", to the tune of £30k lost tax revenue. Fired one guy for moaning about immigrants and then offering cash rates.
Countries like Greece and Italy nearly collapsed because of nonfunctional revenue systems. We're pissing around with IR35 when what we need is an army of auditors or traceable currency.
And yes, per the sibling comment, this would have to be the only currency. Half measures have no benefits here.
How are you imagining that more granular data would help? It probably won't make a difference. The lag time between action and result is measured in years and there are shocks along the way.
And even if it did, we've never really had the public debate on monetary policy. I reckon the median voter would, all else being equal, want "stable prices" to mean that the prices don't change on average. It isn't at all clear we want the community who thinks "stable" means "exponential increase" to be made more effective in their work.
If there's a government-blessed open, digital way for a citizen to pay taxes and government services, merchants and banks are highly incentivized to standardize around integrating their payments services on it.
I have read all the comments here (always a pleasure)
People's greatest fear seems to be control by the state
I fear that too, but I fear private power more.
Private power is accountable to none but the owners. Where I live the state can be held politically accountable. It is an imperfect system, and we the people are forever contesting control of the state with private power, but we have agency in that struggle
> People's greatest fear seems to be control by the state
> I fear that too, but I fear private power more.
Are there a lot of examples in history of private power controlling large populations that you could share?
Oddly my recollection of history seems to include just a few of governments controlling and mass murdering populations but I’m struggling on the private power ones a bit …
> The point there being that the bank is the middleman not the government.
The current UK government is not going to be the one to "expand the role of government", eliminate the private sector and avoid allowing "private enterprise" (i.e. their pals and donors in big business) a role (i.e. a cut). They're ideologically opposed to that. Mr Sunak, The current PM has ties to banking, he's not going to leave them in the cold. Like he does with pensioners who can't afford heating.
Grandparent is correct: currency is already digital. The majority of my GBP transactions are digital now - they are not pieces of paper with picture of the late Queen changing hands, they are database records, mediated by a "buy" button in the web browser, or the tap of a card onto a reader.
Nevertheless, there are political parties that claim to believe in "small governments" along with "free markets", "individual achievement" and other buzzwords that mean they'll enrich their pals in business, and cut anything that helps poor people. The current UK administration is very much one of those.
They will (ideologically) shrink certain aspects of the state by "outsourcing" or handing it over to private companies. e.g. If you think that the welfare and healthcare aspects of the UK state are currently "expanding the role of government" then you're misinformed. If you think that there hasn't been "austerity" for government services in the last few years, then you don't know the UK at all.
Banking will be likewise, they don't believe in meaningful financial regulation.
Not to change the subject; the claim was not "one is better than the other", the claim was "this government will make the government the middleman for financial transactions, instead of a bank".
And in terms of this government where the PM, Mr Sunak, is an ex-Goldman Sachs guy, it is an extraordinary claim. Even absurd.
Interesting topic but there’s not much in the article beyond the headline. The only given rationale is that the BoE might need to issue a digital currency or else “Big Tech” might end up “controlling money.”
Perhaps there’s a better article with more insight, but from this alone I get the feeling this is may just be politicians creating pork for consultants.
I work in a sort of tangential field, and know a lot of people who are involved with digital currency related public policy. The governments motives for taking an interest in this are basically the exact opposite of the motives of decentralized digital currency proponents. Decentralized digital currency offers the potential for increased anonymity, and a lack of central control/regulation/oversight/ect…
Centralized digital currencies offer governments highly increased potential for surveillance, regulation and policing. They create the ability for the central authority to monitor and control the use of money in a far more fine grained manner than the existing financial systems do.
All of the use cases that I hear talked about are focused around these themes, with the threat of decentralized digital currencies undermining these capabilities motivating a lot of the interest.
The ultimate irony will be the harder governments try to push CBDCs the more they will increase demand for Bitcoin. Which sounds like better money:
1. money that can expire. be tracked 100% and censored. be auto taxed. auto inflated.
or
2. money that has limited supply. is permission-less and uncensored. and no single party can control.
It’s the ultimate foolishness of governments to believe the will win that competition. That leads to the proposal they try to ban the 2nd type, but yet again, ironically, that will only increase the demand for it.
The problem is that the government CAN ban crypto currencies like Bitcoin. What use is a currency that cannot be used for any lawful purchase?
As long as government exists, we will never have a fair "competition" to find the consumer's favourite currency.
The currency that wins will be the currency the government collects tax in. If you think about it, that's the underlying purpose of tax - to ensure that a government's centrally-issued currency (be it fiat, crypto or gold coins) is the means by which the government itself can procure goods and services.
> It’s the ultimate foolishness of governments to believe the will win that competition.
I don’t think it’s foolishness at all. The government today has much more power than it did when I was a child. When did anybody ever succeed in reversing this trend? This type of regulation is perfectly poised for success as well, as most people will be unaffected by it, and most people won’t even have any motive to understand the concepts involved. The big financial players don’t really care either, because their roll in the system isn’t really threatened by most of this.
Except with Bitcoin it needs all governments everywhere to coordinate in banning it. It would require extensive intrusive control of the internet. It seems incredibly unlikely that democratic governments will succeed in suppressing Bitcoin and promoting CBDCs.
Banning Bitcoin has never been necessary. If you want to do business in the UK (or any other place), then you need to comply with the rules of their financial institutions. That means doing the KYC, complying with the AML rules, and using whatever currency the central government issues. The government doesn’t need to promote anything. They are the ones who make the rules.
Capital flight isn’t especially relevant. People with capital will always want access to advanced economies, and to get that access you need to use the currency issued by the economy’s central bank. There’s also no reason think this would be a capital-hostile move, large capital transactions are already highly scrutinized and regulated. This would compromise the privacy and freedoms of individuals, who I doubt are going to care.
We will have to agree to disagree because your perspective, while understandable, I fundamentally believe is flawed in it views powers of the state as growing and large enough to overcome market forces that would otherwise chose superior money over inferior CBDC money. We could go on endless between us and in the end it comes down to how we perceive the nation state as evolving with technological changes that include Bitcoin and other modern private currencies. I’m fairly confident it’s much more likely globally the nation states will lose that battle in the end. However you will continue to argue that state power is large enough to counter this. It’s not a debate with a conclusion unless we wait for the future to happen. To your last comment, I would simply say you likely underestimate the scope and influence of black markets that will expand with the restrictions you imagine.
Crypto was always mis-marketed as decentralised. It’s not. The American banking system is decentralised. Credit is created and balances maintained at the edges. Blockchain is centralised. This brings many efficiencies. But it also empowers those at the centre.
Huh? What a strange characterization. Blockchains, some, are clearly decentralized and permission-less. US banking system is highly regulated and permission-ed.
Are you standing by your statement with a serious face?
Yes. There is no database of who has how much in every account. Even with bank and account number, lookup is nontrivial. Blockchains present a single record of everyone’s wallets, all the time. (Even politically, Bitcoin is an oligopoly of miners. Their controlling persons may number fewer than half of the Congress. Proof of Stake, meanwhile, is explicitly rule by the rich.)
Permissionless, and more pointedly, unregulated, are blockchain’s features. Decentralisation is not.
Your first point refers to to the perceived lack of privacy features of Bitcoin. I’ll mention that there are many working solutions to that and Litecoin has taken that even further already with MWEB and it’s quite conceivable this will eventually be added to Bitcoin, however even with segwit and taproot, Bitcoin at L2 can be used with high levels of privacy and will be. So that makes your observation about on chain address balances being public not so relevant.
In regards to your point that the current US banking system has an franchised type credit creation model and that could be viewed as decentralized. First I’m a bit confused as we are discussing CBDCs which are explicitly an attempt to make the system more centralized. But irregardless, it still makes no sense, because to move money between US banks, the systems involved flow through the Fed and the messages
include extensive identifying meta data. Additionally all transfer information and account balances can be requested by federal authorities without warrants, their is no legal expectation of privacy in regards to your banking transactions. So it really doesn’t make a lot of sense to call this decentralized simply based on the franchised style credit creation model, while simultaneously discussing transaction privacy.
Lastly, on miner oligarchy and lack of decentralization. Your statements are actually pure misinformation. Mining pools are ephemeral relationships amongst actual miners, actual operators are highly decentralized and global. The Bitcoin node network is the most decentralized network that exists.
I don’t believe you actually understand the topic as you claim to.
> observation about on chain address balances being public not so relevant
Not public. Centralised.
> to move money between US banks, the systems involved flow through the Fed and the messages include extensive identifying meta data
No, it doesn’t. When I transfer funds from UBS to JPMorgan, UBS deducts my account and adds money to JPMorgan’s account at UBS. (Exceptions including cheques and wires.)
> transfer information and account balances can be requested by federal authorities without warrants
This hasn’t been true since at least 1978 [1].
> Mining pools are ephemeral relationships amongst actual miners
Mining control is highly concentrated [2]. Whether they’re in pools or acting alone is irrelevant to the question of concentration of governance.
The raw messages include specific recipient and sender identifying fields. All those messages are monitored and stored by multiple federal agencies, including intelligence agencies.
So NO your transfer from UBS to JOMorgan is not handled operationally as you imply other that obviously the Fed clearing account balances belong to each of the participant bank. However the actual recorded and available messages include names and details of sender and receiver!
(edit) The privacy act you refer was altered by the Patriot act and is no longer the case. Your financial records are property of the bank and the government can inspect them at anytime without any notification under Patriot act. It took me a few minutes to reconcile understanding of what actually occurs being in contradiction to the link you provided to the Privacy law, which is as I say, no longer relevant.
As for mining operator centralization if I can get access to the nber paper without registering (not on sci-hub unfortunately) I’d read it and have a comment. My guess is it was likely a result of flawed analysis and misunderstanding of mining pool payouts.
> Significant US domestic bank transfers are most done by a combination of Fedwire and FedACH
Sure. Nobody claimed no transfers flow through the Fed.
You’re ignoring CHIPS, which does over two thirds the volume of Fedwire, as well the entire consumer payment system. Even ignoring Eurodollars, most dollar payments do not flow through the Fed. This is Exhibit A for a CBDC.
> financial records are property of the bank and the government can inspect them at anytime without any notification under Patriot act
The FBI always had an NSL carve-out. The PATRIOT Act expanded it. But e.g. the SEC or State of California can’t pull your bank records without court approval. That’s because of the RFPA (which explicitly made bank records the bank’s property).
> it was likely a result of flawed analysis and misunderstanding of mining pool payouts
I can tell you are arguing in bad faith now because first you refer to a 1978 privacy law which is irrelevant and not applicable, but additionally when I mention Patriot (intentionally instead of AML 2020) you admit Patriot changes it and talk about SEC and State of California, which for political dissidents would be irrelevant. However you now will perhaps even admit that after 2020 AML there is zero privacy in US banking system even in the CHIPs clearinghouse you hold up.
I’m not sure what to make of this discussion. Do you perhaps have a vested interest in the current financial system and establishment which motivates the presentation of information in such a biased approach?
For Bitcoin miners there are many ways to see that the system is decentralized and distributed. When China interferes with Chinese miners we see hardware and hashing migrate locations. We see numerous examples of energy arbitrage.
> you refer to a 1978 privacy law which is irrelevant and not applicable
This is wrong. Prior to the RFPA, there were no federal legal protections for these records. The IRS and SEC could request records without the customer’s or a judge’s permission. After, including now, they can’t. That’s far from irrelevant.
> you now will perhaps even admit that after 2020 AML there is zero privacy in US banking system
Still a straw man. Nobody said the American banking system is private for political dissidents. Just that it’s decentralised. Bitcoin, by having a single, centralised ledger, is not.
> authorities can seize funds on this centralized ledger in numerous ways
This has nothing to do with centralisation or decentralisation. Cops can seize your physical foreign currency, gold, and yes, Bitcoin. Being able to seize something is a function of power, not topology.
> IRS can issue a summons for financial records to any US bank without any court order or justification
This is wrong. IRS summons are an administrative procedure that requires notice (with justification) and can be “quashed” [1]. In some cases they can notify you ex post facto, but that lowers the burden for quashing. To be sneaky they need to loop in Justice.
You’re continuing a pattern of issuing confidently worded, starkly incorrect readings of U.S. financial law.
> best they get to is that 50 mining operations control almost 50%
Count the number of people required to make decisions in this system. That’s political centralisation. A smaller number of people have absolute control over Bitcoin, through their control of mining operations and holdings, than comprise a majority of the Congress plus one (the President).
Centralization is a loaded term here. Using a distributed protocol doesn't automatically make it decentralized. Alternatively, being heavily regulated doesn't mean it's centralized. You can move your business to a different bank. You can't move to a different blockchain and stay in the same payment system.
Be careful not to be distracted by the technical implementation. Centralization is about control. And by being highly regulated, it’s super centralized.
Personally I believe this is an incredibly good feature, not a bug.
Banks act independently. There are rules and boundaries set by the central bank, but the create credit on their own initiative and do not have to justify or record each transaction witt a central authority
Block chain keeps everything together in one database.
I think that is the sense that banks are decentralized despite a central bank
Isn't the most undesirable thing about the blockchain is the inefficiency?
IMO the fundamental misconception about cryptocurrencies, that I know about, is that trust can be replaced by an algorithm. The most important ingredient of money is trust
I look forward to the articles about government abuse of digital currencies being shouted down as insane conspiracies in the next 20 years or so. Good luck, UK, good luck.
My understanding, anyone is welcome to correct: the 51% attack doesn't apply, but that's because there is a central party with full control from the start.
CBDCs are digital currencies but do not have to be cryptocurrencies with distributed consensus, blockchain, proof of work, etc.
Instead they are likely to be completely centralized; at an (absurd) extreme a global Excel sheet with edit access enabled for the Treasury Secretary and Fed Chair.
But then how is it different from regular currencies?
Take the US dollar. It's mostly numbers in databases. Physical cash (dollar bills and coins) is a tiny fraction of the total amount of money in circulation. By now all major currencies are "digital", and most likely all non-major currencies too.
A CBDC is merely a tool of oppression. It needs to be said, and it is wrong to allow their collaborators in media and politics to act surprised when the oppressiveness of the scheme is revealed. I think that governments have mostly given up on the polite fiction that they serve their citizenry, and their logic today comes down to the minimum coalition necessary to maintain their seat of power. A computational currency reduces that coalition to a tiny oligarchy.
The progress of CBDC's will likely rhyme a lot with the origins of Facebook and Linkedin, where there was open aggression and campaigns to discredit people who declined to adopt them, and today there are people on social media, and those who are not. Vaccine passports revealed the ugly and hysteria prone sadism of ostensibly normal people, and while nobody is perfect, these cetralizing technologies elevate the absolute worst aspects of human behavior as they compete to climb over one another to ingratiate themselves with compliance to it.
A huge proportion of crypto projects by count and an embarrassing proportion by market cap are scams.
Nonetheless, I really hope someone cracks the remaining crypto issues (scalability, identity, ux, anonymity, governance protocols) well enough to provide sufficiently stable infrastructure for gvts to bootstrap off instead of rolling their own. I worry about the centralization of power otherwise.
All these issues have been solved already by the banking system. It's remarkable how people who believe in cryptocurrencies as a silver bullet cannot see they are just re-implementing an existing system, and stumbling upon all the problems we already solved for as a society, without adding anything of value. Yes, it's automated and abstract and makes you feel smart.
The fundamental problem here is that a clean slate favors the most powerful players.
What is the advantage for me as a citizen?