China, EU, and Canada Advance CBDCs

Like it or not, the world is racing toward a digital financial system without cash or privacy. Digital currencies are called central bank digital currency (CBDC). In April 2021, 74 countries were in various stages of developing a CBDC, with none launched. On December 31, 2022, 114 countries, representing 95% of global GDP, actively developing or launching a digital version of their currencies. The graphics compare April 2021 to December 2022. 

Eleven nations have fully launched their CBDC, with Nigeria being the largest economy thus far. However, China, the EU, and Canada made significant strides this week toward releasing their CBDCs. China entered Phase 2 of testing. The EU released a timetable showing Q3 2023 for CBDC implementation. Canada released a design for offline CBDC usage.  

China is the world's second-largest economy and has been testing its CBDC domestically and in cross border transactions for over three years. China’s CBDC is called the e-CNY. China has tested the e-CNY in 26 domestic cities and zones and recently completed a cross-border test with Thailand, UAE, Hong Kong, and the Bank of International Settlements . China has moved to phase 2 of e-CNY testing. Phase 2 is about increasing user adoption.

According to the People's Bank of China, there was 13.6 billion Yuan ($2 billion) worth of e-CNY in circulation at the end of December. To bolster user participation, three more banks are participating in e-CNY settlements totaling four, HSBC (seventh largest global bank), Hang Seng Bank (around 20th largest), and Standard Chartered (47th largest bank), and Bank of China Hong Kong (branch of the 4th largest bank). Also, China is offering 20% discounts to tourists and citizens at over 1,400 stores if they use the e-CNY. There are a few different digital wallets customers can use. Tourists can either have the wallet installed on their cell phone sim card or a card like a debit card.

The EU released a timetable for a staggered rollout of its CBDC.  The staggered sequence will start with person-to-person transactions, then move to physical stores, e-commerce, and finally government payments. Each rollout progression is increasingly complex. The ECB stated, "In practical terms, a staggered approach would contribute to ensure a smooth end-user payment experience (i.e., gradual understanding and adoption of the different use cases and technologies by end-users) and reduce the implementation complexities associated to (e.g., rolling out at pan-EA level). The EU began a two-year investigation into developing its CBDC in July 2021. If the EU stays on schedule, it will implement its CBDC in Q3 of 2023.

 The Bank of Canada (BOC) is addressing offline CBDC issues. The BOC wants their CBDC to offer benefits including enhanced resilience, accessibility, inclusivity, and privacy in remote areas without reliable or affordable internet access. The basic concept is that a transaction could happen and settle later when internet access becomes available. Suppose two people make a transaction, but there isn't internet. The bank would put the funds into the clearing in the payor's account and pending settlement in the payee's account whenever the internet connection was restored. The funds would clear and settle when internet access became available. According to an International Monetary Fund study from 2022, the ability to function without internet access will be a "make or break" function for a CBDC.

It takes time for people to change their behaviors, but there are always signs revealing where the world is going. The world has been moving toward a cashless society for decades, but this has accelerated since Covid 19. More people rely on debit cards, credit cards, and digital wallets. 80% of all consumers prefer to pay with a card than cash. Only 14% primarily prefer cash. The chart shows that 41% of people no longer use  any cash for transactions. As more CBDCs emerge, more people will reject cash entirely. Every G7 country (U.S., Canada, Italy, Japan, U.K., Germany, and France) has a CBDC test or launch scheduled for 2023. 

Some people are not bothered by programmable money, but they should be. CBDCs can be programmed to expire, blocked from certain transactions like firearms, localized to an area, and track every expense for government profiling, taxes, and other unimaginable and nefarious uses. Politics could be programmed into CBDCs, like penalties for carbon-emitting purchases or incentives for supporting specific types of businesses. 

Suppose, however unlikely, that the central banks create the CBDCs with the utmost integrity and no privacy-invading technologies. The best-case scenario is that it would be a digital (invisible) fiat currency. Multiple studies show that people using credit cards or debit cards spend more than people paying in cash. The average consumer spends 12-18% more with a card than cash because they don’t feel the charge until the next billing cycle. Since people don’t feel the pain immediately, Governments exploit this behavior by raising tolls after installing automatic payment processors like EZpass or TXTag. The predictable outcome is that people will spend more, meaning less in savings, and be taxed more under a CBDC system.

Currencies are a means of transacting within a monetary system. Money has intrinsic value, and currencies are representations of that money. The name begs the question of which money they represent. It is called a Central Bank Digital Currency, not a Central Bank Digital Money. Sadly, all fiat currencies represent nothing more than trust in the issuing authority and aren’t actually money. As governments make digital currencies, the validating question about the currency becomes two-fold. Do you trust the government, and do you trust the internet? If you answered no to either question, then CBDCs are a threat to your financial autonomy. You don’t have to be a victim, but you do need to take action to protect yourself. 

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