CBDCs undermine the separation between money and state.

CBDCs undermine the separation between money and state.

The Rise of Central Bank Digital Currencies in the Blockchain Industry

Central banks worldwide have been ramping up their efforts to explore and experiment with central bank digital currencies (CBDCs). With successful proof-of-concept announcements by institutions like the New York Fed and the Bank of England completing phases of their digital pound experiment, over 130 countries are now contemplating the issuance of CBDCs1. The allure of removing private banking middlemen and gaining a new policymaking tool has captured the attention of central banks globally.

However, beneath the surface, a crucial question arises: who will stand on the other side of the ledger? The answer lies in the hands of a sprawling and inquisitive government capable of tracking every dollar and cent spent2. The idea behind CBDCs is for central banks, such as the Bank of England, to issue a digital pound directly, representing a claim on the central bank itself, similar to cash in circulation today3. This is a significant shift from current practices, where central banks do not offer accounts to direct depositors, but instead rely on a private banking system4.

While the removal of middlemen may seem enticing, it is crucial to consider the role these intermediaries play in the ecosystem. Middlemen operating in various markets provide value by offering more than the bare minimum, often through innovative banking products and services5. These additional offerings are the result of competitive pressures that benefit consumers and facilitate a vibrant market economy6.

Beyond the potential loss of value-added services, the elimination of private banking middlemen within CBDCs poses risks. CBDCs would grant confidential information and vast power to a faceless government enterprise, thereby compromising individual privacy and creating opportunities for abuse of power7. Unlike cash, which remains untraceable by governments, each transaction made with a digital currency would be recorded and monitored by the state8. This level of oversight raises concerns about personal freedoms and the potential for discrimination or targeting of individuals and businesses9.

The potential misuse of CBDCs becomes more evident when considering the integration of explicit political goals into the system. For example, the Bank of England advocates using the digital pound as a tool to combat climate change10. While noble in intention, the regulation of controversial and complex issues, such as climate change, through financial systems raises concerns about industrial policy being enforced through bank accounts11. It introduces the possibility of subsidizing certain energy producers while penalizing others without the need for private investors or proper scrutiny12. This opens the door to a politicized financial system with little recourse for those affected13.

Additionally, the rush to implement CBDCs without careful evaluation could lead to wasteful spending and inflation pressures. During the pandemic, hastily distributed government payments proved to be inefficient and costly14. The implementation of a digital currency system that creates different classes of individuals vying for “free” cash could exacerbate short-term incentives for political leaders, potentially leading to long-term inflationary consequences15. Furthermore, the ability of central banks to deploy countercyclical monetary policies through targeted cash boosts risks turning economic stimulus into a dangerous political tool16.

While the desire to embrace new technologies is understandable, it should be done cautiously and in the right manner. The notion of “separation of money and state,” where money acts as a neutral unit of measurement, is vital for stable currencies over time17. The concept of a fixed monetary policy, exemplified by Bitcoin’s predetermined supply of 21 million units, protects against value dilution and prevents government-centered systems from achieving the same level of security and stability18.

In developing countries plagued by monetary mismanagement, programmatic cryptocurrencies like Bitcoin offer a pathway to stability and increased investment19. By adopting these innovative forms of digital currency, central banks can bring discipline to their monetary systems and avoid the pitfalls of a socialized banking system20. On the other hand, countries that have maintained prosperous economies without relying on financial system control should be cautious about embracing a nationalized banking system21.

In conclusion, the growing interest in central bank digital currencies within the blockchain industry indicates a shift in the financial landscape. While eliminating middlemen and incorporating new technologies may seem advantageous, the potential risks of eroding privacy, enabling political influence, and undermining financial stability must not be overlooked. As the blockchain industry continues to evolve, careful evaluation and consideration of the societal, political, and economic implications will be paramount in shaping the future of central bank digital currencies.


  1. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  2. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  3. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  4. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  5. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  6. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  7. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  8. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  9. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  10. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  11. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  12. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  13. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  14. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  15. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  16. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  17. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  18. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  19. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  20. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎

  21. Max Raskin and Richard Epstein. “Opinion: CBDCs Are Financial System Red Flag, Not a Means to Modernize It” on CoinDesk. Link↩︎