Introduction
For my dissertation research I am focused on the unique values and use cases of a Central Bank Digital Currency (CBDC) over traditional currency. CBDC is ultimately designed to solve a practical problem of transacting and monitoring money in a digital age. Within CBDC, there are many direct and indirect issues attached with the examination of a change to the national currency. The primary issue is that it sparks discussion of a system that generally is behind the scenes for most of the population. When the general public think of “US Dollars” they associate all forms of the US Dollar as being equal. That is because to the general public they only have access to one type of money. In fact, however, there are universally three forms of US Dollars: 1. Paper Currency, which is everyone thinks of as ‘real’ money. Banks will generally exchange bank reserves for real currency on a 1:1 basis outside of times of stress. 2. Reserves, which is ‘money’ that banks hold on their balance sheet. Reserves are essentially an IOU from the federal reserve, guaranteeing they will print enough money to make them whole. And 3. Eurodollars and/or Currency Swaps. This is similar to Reserves, but the ‘guarantee’ is between two private entities. Typically, these are promises that are traded back and forth, which can ultimately be deposited into a bank and converted to reserves (Baek et al, 2018). CBDC, in effect would become a fourth type of currency, but more importantly it highlights that there are different forms of US Dollars, which is a larger debate that becomes entwined in the conversation of CBDC.
Scope
For the sociotechnical plan, outlined below are three (3) features of CBDC, and two (2) limitations.
Feature 1: When transacting digitally, the US population are pseudo-required to have a bank account. One cannot go onto Amazon or Netflix and pay with cash. Being a middle-man, banks collect a fee from the retailer that is largely invisible to the consumer. This embeddedness of banks is essentially a forced regressive tax on the population to engage in online commerce, which is now 14-20% of consumer transactions (Wang, 2022). CBDC allows an option for US consumers to transact online with essentially the same method as paper-cash, by using native currency created by the Federal Reserve.
Feature 2: CBDC provides the government a more direct way of providing stimulus and other forms of assistance. During the COVID-19 pandemic, the federal government pays $931 billion in direct stimulus to individuals. CBDC would have provided a faster and more strategic way of deploying the funds. Avoiding many of the issues faced in providing stimulus to those most in need such as first-time filers, mixed immigrant status families, and those experiencing homelessness (GAO, 2022). Additionally, these funds could have been earmarked for specific use such as shelter or food, to avoid using the stimulus for unintended purposes such as purchasing meme-stocks or drugs, or cause inflation as consumers pile into certain goods and not others.
Feature 3: Given the lack of a direct digital currency, this has opened the door for private currencies to fill the gap. Private digital ‘crypto’ currencies such as Bitcoin or Ethereum, or the hundreds of other “coins” have started to fil the gap for those wishing to transact digitally without a bank. Originally the purpose of these tools was nefarious, such as the Silk Road dark Web fraud (DOJ, 2022), but have since found mainstream adoption. As unregulated assets, private digital currencies provide no backing as is generally needed by a currency. This can often lead to fraud and schemes which leave consumers empty handed, particularly since digital assets can be created as relatively no cost to the issuer.
Limitation 1: Although unlikely to take over ledger-based dollars, the option of CBDC oversteps into the bank’s realm in terms of consumer transactions. Thusly banks would largely be opposed to CBDC, as their preference is that all consumers run transactions through the banking rails.
Limitation 2: CBDC allows a lens in which the government has more direct insight into purchases made by the population. While they already have this data via the banks, the direct ability to monitor and control money on a personal level could lead to nefarious overreach, or worse the conspiracy of the overreach could limit its adoption by the general public.
References:
Baek, J., Kim, S., Pahk, Y., Manzini, E. (2018). A sociotechnical framework for the design of collaborative services. Design Studies, Volume 55, Pages 54-78. ISSN 0142-694X https://doi.org/10.1016/j.destud.2017.01.001.
Echavarria, P., Griyyataphong, P. (2022). Bretton Woods and the Growth of the Eurodollar Market. Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/on-the-economy/2022/january/bretton-woods-growth-eurodollar-market
GAO. (2022). Stimulus Checks: Direct Payments to Individuals during the COVID-19 Pandemic. U.S. Government Accountability Office. https://www.gao.gov/products/gao-22-106044
DOJ. (2022). U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud. United States Department of Justice. https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction
Wang, A. (2022). What Is the Share of E-Commerce in Overall Retail Sales? CBRE: Global Commercial Real Estate Services. https://www.cbre.com/insights/articles/omnichannel-what-is-the-share-of-e-commerce-in-overall-retail-sales
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