Supporters of central bank digital money also support government surveillance cameras in their homes

In a world increasingly moving towards digital solutions, the adoption of Central Bank Digital Currencies (CBDCs) has sparked significant debate. A recent survey by the Cato Institute highlights a surprising revelation: the majority of Americans show reluctance towards the adoption of CBDCs, primarily due to concerns over freedom and privacy. This article delves into the findings of the survey, compares global stances, and highlights the contrasting differences between CBDCs and traditional cryptocurrencies.

A Cato Institute survey published in the spring showed that Americans do not support the adoption of central bank digital money. The majority who do support it also support putting government surveillance cameras in people’s homes. This reflects the extent to which central bank digital currencies could threaten people’s freedom and privacy.

The Cato survey found that only 16 percent of Americans support the introduction of central bank digital currencies (CBDCs). 34 percent oppose CBDC and as many as 49 percent have not yet formed an opinion. The reason is probably that people just don’t know enough about it.

However, the survey found that as Americans learn more about CBDC, they will have stronger opinions about it. Below is the percentage of people who would oppose central bank digital money if:

• If the government could control what people spend their money on (74%)
• If the government could control what people spend their money on (68%)
• If it involved the abolition of cash (68%)
• If it would attract cyber-attacks (65%)
• If the government could tax people who don’t spend money during a recession (64%)
• If the government could freeze the bank accounts of people involved in political protests (59%)

Support for digital money is also low, even when it comes to awareness of its benefits

The Cato Institute, which conducted the survey, supports libertarianism and attaches great importance to people’s freedoms. In part, this may mean that they are more opposed to central bank digital money.

At the same time, the positive aspects of digital money were given just as much space in the survey. Even when explaining the benefits of CBDC to people, most Americans do not support it. Below is the percentage of people who would support CBDC if:

• If it reduced money laundering and fraud (42%).
• If the government can make sure that social benefits are used for the intended purpose (40%).
• If it made it easier for unbanked people to access the banking system (32%).
• If it helps the Federal Reserve better deal with the recession (32%)

However, for all of these scenarios, there remain a quarter to a third of people who have not yet formed a view.

A majority of Americans are concerned about the potential risks of the CBDC, and fewer are enthusiastic about its positives. The survey also asked which of these two statements is more in line with your view?

Answer options:

• The government shouldn’t issue CBDCs because it allows the government to potentially monitor what people are buying and potentially control how people are spending their money. (76%)
• The government should issue central bank digital money because it would reduce financial crime and other illegal activities while increasing access to the financial system (24%).

It turns out that more than three-quarters of Americans do not support central bank digital money because it has the potential to limit people’s freedom.

Screenshot from Cato Institute survey. Source: Cato Institute.

Notably, more than half of those who support central bank digital money also support the installation of government surveillance cameras in Orwellian 1984-style homes. In total, 14 percent of Americans support government-style surveillance cameras. Among them, 53 percent of respondents support central bank digital money.

Americans’ trust in government has also declined rapidly in recent decades. While 77 per cent of Americans trusted the government in the late 1960s, this had fallen to 20 per cent by last year, according to a Pew Research survey. This is certainly one of the factors behind the lack of trust in central bank digital currencies.

In Nigeria, the central bank’s digital money was met with riots

So far, three countries – Nigeria, the Bahamas and Jamaica – have adopted digital money. The Nigerian experiment turned out to be a very crude game of government control and power.

In Nigeria, the eNaira came out in 2021. It gained virtually no traction in society – only 0.5 percent of people used it. And the reason was not that Nigerians are somehow distant from cryptos – more than a third of the 200 million population own bitcoin. More than half use cryptocurrencies. So it wasn’t about the technology or its complexity.

The Nigerian government decided to react harshly. First, it started offering discounts to users of the central bank’s digital currency, and later it started limiting cash withdrawals from ATMs to $40 a day. The aim was to force people to use the central bank’s digital money and move towards a cashless society.

The use of informal currencies has now become a large part of the economy. This is very important for Nigerians because it is the only part of the economy that is not fully controlled by the government. It is very important for the functioning of the economy.

Restrictions on the use of cash led Nigeria into total chaos. People were unable to buy food and shops could not fill their shelves. Nigeria is Africa’s biggest oil producer, but petrol stations ran out of fuel. People rioted, burning banks and attacking branches of the country’s central bank. The example of Nigeria should make us very wary.

UK government: no programmable digital currency will ever be

In the United Kingdom, tens of thousands of people signed a petition last year calling for a programmed central bank digital currency not to be introduced.

The government also responded by saying that programmable digital money would lead the country down a dark path, beginning to undermine the freedoms the country holds so dear. The government also said that it had no plans to control how people spend their money. However, it did not rule out the introduction of a CBDC. Only time will tell whether the government will live up to its words.

Last November, thousands of people in the Netherlands protested against the euro area central bank’s digital currency. The protests started after Queen Maxima announced that she was a supporter of digital money. In 2020, the Netherlands signed an agreement with the European Central Bank to become a CBDC test country.

Central bank digital coins are on the way

Despite the controversy, governments are moving towards the introduction of central bank digital currencies. The Atlantic Council, based in the US, published a study in June which noted that a total of 130 countries are already developing central bank digital currencies. Half of these are at the pilot development, pilot programme or issuance stage.

The CBDC Tracker has put together an infographic showing the different stages of CBDC development in different countries:

Central bank digital currency development phase in different countries. In red: cancelled; in green: research stage; in purple: proof of concept; in brown: pilot; in blue: deployed.

What distinguishes a central bank’s digital money from electronic money is that it creates a direct link between the user and the government. With electronic money, the money in your account is the responsibility of the commercial bank, whereas with CBDC, the person has an account with the central bank and the money in their account is the responsibility of the central bank.

In addition, CBDC is built on distributed ledger technology. It is also programmable, which means that information can be added to digital money. This makes it possible to control how and where the money is spent.

CBDC is digital money, but it is very different from the digital euros and dollars that exist today. It is easy to conclude that CBDC is like a government-run bitcoin. However, it should be recognised that there are very big differences.

Firstly, the main innovation of a cryptocurrency (such as bitcoin) is that it allows value to be stored and acts as a medium of exchange, based on cryptography. It does not depend on governments or third parties. For example, a person does not need the permission of a government, a central bank or a company to use bitcoin.

CBDC, on the other hand, is money provided and controlled by a government. This means that it is centralised. Although it uses the same technology as cryptocurrencies, CBDC allows the central government to control who uses the money and how. This idea is at odds with many cryptocurrencies, which are based on the idea that they are not centrally controlled.

Read more about how CBDCs can be used to restrict people’s freedoms and violate privacy here.

In light of the growing debate surrounding the adoption of central bank digital currencies (CBDCs), it’s evident that financial institutions are poised at the cusp of a transformative shift. The Cato Institute’s survey underscores a prevailing sentiment in the United States, where concerns about the safety of personal information and the potential for unchecked governmental surveillance overshadow the perceived benefits of CBDCs.

With the power to access bank account details directly, CBDCs could provide unparalleled insights into individuals’ financial behaviors and transactions for goods and services. However, this digital form of legal tender might disrupt existing payment systems, prompting both public and private sectors to reconsider their approach to financial stability.

The lessons from countries like Nigeria suggest a precarious balance between the allure of a modern financial system and the potential pitfalls of coerced adoption. While some countries, like the United Kingdom, guided by the Bank of England, adopt a cautious stance, others are rapidly moving forward. In the short term, the introduction of CBDCs might pose challenges to traditional banks and digital wallet providers, as they integrate these new systems.

There’s also a heightened concern about the blending of CBDCs with smart home technologies, where devices, potentially equipped with features like night vision, could inadvertently expose users’ IP addresses or other sensitive details, compromising the overall security system. In conclusion, as CBDCs pave their path into the global economy, it’s crucial for stakeholders to ensure that the essence of privacy, choice, and trust remains intact.