Those looking forward to the emergence of central bank digital currencies in developed countries may be up for a very nasty surprise. The long-awaited CBDCs are likely to become one of the worst tools of mass surveillance.
China is not joking around: the digital yuan, issued exclusively by the People’s Bank of China, is meant to replace the dollar in the global financial system and end the country’s dependence on the United States. All competing cryptocurrencies are mercilessly persecuted, as the government has already banned all operations with crypto. At the same time, China has not yet focused on the ability of the digital yuan to “expire”. The adoption process is still in the promotional stage: the token is available to all companies under US sanctions that cannot fully work with the dollar, and there is no transaction tax.
But it is also the first step towards a total transformation of the global financial system. A new paradigm will have no salaries or taxes in the usual sense, there won’t be a point in saving or investing, and ultimately no property, only rent.
It’s true, reform of global finance is long overdue. The US is once again discussing a potential default. Obviously, there won’t be any default since the state always just prints money to service its debt, but this cannot go on forever. And the problems don’t end there. According to UN estimates, the “green transition” will require trillions of dollars in investments, which are simply nowhere to get from.
Looking at the future of the financial system, we can already see the possibility of a certain barter system emerging based on new grounds. This idea forms the foundation of “merit economics”, a theory according to which money is essentially canceled, and society provides some benefits to its citizens in exchange for conscious behavior and effective work. In this new society, banks will provide soft loans to citizens who, for example, sort their waste and refuse a personal car. The only problem is keeping track of the “merits”. And this is where blockchain may play a role.
The “expiring CBDC” proponents compare them to potatoes: either you eat the crop, or it perishes. The comparison is rather tenuous… But I do want to understand how a financial system with “temporary” money would actually look like. How does one save up “expiring” cash? How does it get spent? These are not pointless questions, as the concept of time-limited money, which is now being seriously considered by central banks worldwide, abolishes both wages and taxes and completely transforms monetary relations.
Initially, we will see taxes disappear. The current tax system has colossal transaction and administrative costs, while digital currency simplifies everything. Charging just 0.5% on every digital transaction of one CBDC coin would be enough to fill any budget. (The figure, of course, may differ from country to country, but not by much.)
Naturally, such tax can only be levied on working money and not your “under the mattress” savings. The solution is clear: there should be anything to save. If the money isn’t working, it simply evaporates. The technology behind CBDC could limit the shelf life of money, similar to the nuclear half-life.
Those are not some fantasies of futurologists: There are specific projects, in particular, those currently being worked out at the Central Bank of Russia for the digital ruble. The calculation is simple: the ratio of GDP to the state budget revenues is, with some amendments, the “lifespan” of money. This way, we get about three to five years.
Another fundamental change that awaits us quite soon is the person himself acting as the issuer. If you are a citizen of a given country, you are supposed to issue a specific annual amount of digital money from the moment of birth. The quantity is estimated as the ratio of the money supply expiring that year to the population. To more freely use the “expiring” money, it is reasonable to count the “half-life” period from the first transaction, not the emission.
As a result, salary gets canceled and replaced by a version of the universal basic income. The money emitted by citizens can be “colored”: say, 20% of the emitted funds are marked for the purchase of public services. If nothing gets bought, this money eventually goes away. Among other things, it ceases to be a store of value.
What is being discussed is a particular way of distributing part of the country’s annual GDP among its citizens. The post-industrial economy needs something like this on a permanent basis, and the blockchain makes it possible. Central banks, in turn, will be only happy with this level of control over the money supply.