Global policymakers are still pushing CBDC despite its failures.
Despite the risks and failures associated with central bank digital currencies (CBDCs), global policymakers are working to make them a reality.
In November alone, officials from the International Monetary Fund (IMF), Bretton Woods Committee, and Bank for International Settlements (BIS) held a rally urging the government to pursue CBDC with courage and determination. But rather than doubling down on bad ideas and wasting more resources, policymakers should abandon these ideas and focus on more fundamental reforms that can create a freer financial system.
The November CBDC campaign began with IMF Managing Director Kristalina Georgieva telling policymakers that “in any case… we need to pick up the pace (with CBDC development).” Bretton Woods Chairman Bill Dudley similarly called for the United States to develop a CBDC as well as for the BIS to establish international standards for CBDC. And Cecilia Skingsley, head of the BIS Innovation Hub, told the audience that CBDCs could be useful one day and should not be dismissed as “solutions in search of a problem”.
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These calls come at strange times. Nine countries and eight islands that make up the Eastern Caribbean Monetary Union have launched CBDCs, according to the Human Rights Foundation’s CBDC Tracker. 38 countries and Hong Kong have CBDC pilot programs. 68 countries and two currency unions are researching CBDCs. However, none of these projects have proven worthwhile.
But some governments may not even have money to donate. In Thailand, a plan to provide 10,000 baht ($288) to citizens through a CBDC was delayed in part because the government did not confirm where the 548 billion baht ($15.8 billion) needed to cover the handouts would come from. What’s worse is that some people warn that the handouts may not be legal. Only later did the Prime Minister announce that it would be financed with government loans.
Elsewhere, the CBDC experience has been much worse. CBDCs in Nigeria have struggled a lot to gain adoption and the Nigerian government has started taking cash off the streets. Within weeks, a severe cash shortage led to protests outside banks and riots in the streets. Despite this, CBDC adoption only increased from 0.5% to 6%.
So the CBDC experience seems to be one of government waste at best. At worst, the CBDC experience is one of government control. And against this background, it is difficult to understand why international organizations such as the IMF, Bretton Woods Committee, and BIS are still asking policymakers to impose CBDC.
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Indeed, after seeing the failures and considering the risks still looming, neither the U.S. nor foreign governments should launch CBDCs. Simply put, the costs outweigh the benefits. There is no doubt that central banks and other organizations have invested time, resources, and reputation into developing CBDCs. However, it would be a mistake to make these investments fall prey to the sunk cost fallacy.
That said, if policymakers want to transform the financial system in a way that benefits everyone, there is a lot they can do to make it freer, more accessible, and more open.
Indeed, there is no shortage of policy reform ideas on the table. There are many opportunities to reform today’s financial system, from strengthening financial privacy to establishing oversight by federal regulators.
Consider, for example, the idea of mastering ongoing financial surveillance. U.S. financial institutions will spend approximately $46 billion to comply with 2022 financial reporting requirements. These costs ultimately fall on people trying to open an account or take out a loan. Moreover, delays in transfers and payments also incur invisible costs as agencies work to verify identity, spending habits and issue individual reports to the government. Just reforming financial policy has the potential to create a cheaper and faster financial system.
Perhaps best of all, reforming financial privacy doesn’t require reinventing money into everyone’s pockets.
Nicholas Anthony He is a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives. He is the author of: Infrastructure Investment and Employment Act Attack on Cryptocurrency: Questioning the Basis of Cryptocurrency Provisions and The Right to Financial Privacy: Building a better framework for financial privacy in the digital age.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
