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The Wall Street Journal warns of the risks of central bank digital currencies

3 min read

 

The topic of cryptocurrencies of central banks, ie the CBDC (Central Bank Digital Currency), will become increasingly hotter in the coming years. Most major central banks have already launched their pilot projects on national cryptocurrencies, and in China, a pompous presentation of the digital yuan to the world is expected during the next Winter Olympics in Beijing.

National cryptocurrencies, or CBDCs, have the potential to give central banks even more power than they currently have. A section on the Wall Street Journal points this out. His long-time journalist James Mackintosh addressed the topic in more detail, noting that one of the powerful tools that central banks will be able to use effectively through the CBDC is negative interest rates.

Negative interest rates are perhaps the last possible tool that central banks can put into play if they want to succeed in the fight against the market recession. With a negative rate, holding money in the bank (apart from inflation) is disadvantageous, because in such a case the bank deducts part of this money. In other words, it does not reward you with interest for keeping money with it, but on the contrary, it “punishes” you for keeping it. The goal of negative interest rates is therefore to motivate people to spend money, because it is not worth saving them on the account.

As for the US, negative interest rates are reportedly not at stake yet, and rather there is talk of raising them between 2022-2023. They are currently at a very low level of 0.25%. However, the Wall Street Journal analysis says that if CBDCs come, the path to such negative interest rates will be easier. Negative interest rates are already used in some countries – Japanese Bank of Japan keeps them at the level of -0.1%, Swiss at -0.75%, no a European Central Bank experimented with them in 2014, when it temporarily got them to negative -0.5%.

Cryptocurrencies – even central banks – are programmable money. You can easily set rules for them, especially assuming that CBDC becomes one money in the future (they will ban cash). Thus, if people did not have the ability to hold cash, the central bank would gain great power through the ability to adjust interest rates.

In addition, central banks could influence other things with programmable money – in theory, it is possible that the money has a final date, or it could only be used for a certain type of purchase. In the sci-fi scenarios Wolfram Seidermann from G + D Currency Technology suggested, it is therefore possible for money that you have to spend to appear in the market in favor of a “healthy economy”, otherwise you will lose it. Or the money for which you buy only what you are allowed to do.

Even these risks to freedom and privacy are the reason why more and more people are thinking about uncontrollable money like BTC. Unlike the CBDC, he has no boss, no management, just a centralized exchange. In the future, if power rises in the hands of central banks thanks to the CBDC and a potential cash ban, the only alternative to them may be decentralized cryptocurrencies.

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