Why are central bank digital currencies (cbdcs) bad? – The Cons, Disadvantages, Risks, and Threats to Financial Stability

Apr 17, 2023
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By Leroy A. Brown

Central bank digital currencies (CBDCs) are digital money issued by central banks.

CBDCs have the same value as the fiat currency in that country and have similar functions as physical money.

Central bank digital currencies (CBDCs) are not inherently bad; however, concerns and potential risks exist.

Some of the cons, risks, negative impacts, disadvantages, threats to financial stability, and concerns that may arise as a result of having CBDCs are:





CBDCs may make having financial intermediaries like commercial banks and clearing houses irrelevant, as they are no longer needed for financial transactions like settlements.



Commercial banks


Currently, commercial banks are used for bank deposits and to carry out financial activities.

With the implementation of CBDCs, commercial banks may no longer be needed as bank accounts are linked directly to central banks. As such, financial transactions are done independent of commercial banks.





Currently, online scams and hacks are popular and are happening more. Financial systems and databases with very good security measures have been hacked.

Whereas cryptocurrency is controlled by its users, central bank digital currencies (CBDCs) have one controller.

For cryptocurrencies to be hacked, or to have massive fraud, scams, or breaches, all networks on the blockchain that that cryptocurrency is on, or most of them, will have to be compromised for the cryptocurrency to experience serious problems,

With CBDCs, there is just one source – central banks.

Therefore, if the central bank in that country was to have a major hack or a massive scam, breach, or fraud incident, it may result in the entire network becoming compromised, which may lead to a shutdown of the financial sector.  



Financial collapse


A major financial collapse may occur when people switch from commercial to central banks. This is because commercial banks may have liquidity problems as more people withdraw their money.



Commercial banks crisis



Commercial banks may enter into a crisis if they are left out of CBDCs arrangements, as there may be reduced or no deposits as people switch to using the central banks directly.

As such, commercial banks may lose the ability to have funds that assist in their capacity to create credit.





Privacy may be eroded as CBDCs come into existence.

The erosion of privacy may occur due to accounts being directly linked to the central bank, and as such, they can be monitored more, and potentially every transaction may be tracked.



Money Flow


Central banks will have control of central bank digital currencies (CBDCs), and as such, they will have more power to monitor and direct the flow of money.



Loss of independence


Because central bank digital currencies (CBDCs) can be programmed, they may be used to determine what individuals can and cannot do.

Already China has a social credit system that helps determine what individuals can do.



Economic and financial problems


The implementation of central bank digital currencies (CBDCs) may not fix or prevent economic and financial problems such as a recession, deflation, inflation, unemployment, housing, and stock market crashes, etc. 



Other problems


The implementation of central bank digital currencies (CBDCs) may not fix or prevent other problems such as financial inequality, racism, financial and overall illiteracy, discrimination, hate speech, the increased gap between the rich and the poor, etc.



Transaction costs


If commercial banks still exist as CBDCs are brought into existence, they may have to increase their banking services fees to compensate for the lack of deposits.

This increase in fees may contribute to financial transactions becoming expensive instead of cheaper.



Discrimination, harassment, and restrictions


Because CBDCs may be connected directly to accounts, greater monitoring may be done, as well as tracking transactions and collecting personal and other data.

These actions may lead to entities, governments, or institutions carrying out discrimination, harassment, and restrictions on individuals, businesses, or organizations.

Already there are some mechanisms in place that can be used to take action as deemed necessary.

For example, in Canada, during a class action case resulting from the “Canada Freedom Convoy” protest that occurred during the COVID-19 pandemic, the Mareva injunction was issued on February 17, 2022. It was extended on February 28, 2022, to March 9, 2022.

The injunction essentially restricted the leaders, organizers, and fundraisers of the “Canada Freedom Convoy” protest from doing anything with up to $20 million in assets that were raised globally.

This meant that money raised on GoFundMe, cryptocurrencies that were held, etc., were frozen.



Loss of financial autonomy


Because accounts may be connected directly to central banks when central bank digital currencies (CBDCs) come into existence, those accounts may be monitored and controlled by central banks.

As a result of this, central banks and, by extension, the government may decide how and where money flows. This may result in individuals, businesses, and organizations having a loss of financial autonomy as they may not be able to decide where they would like to spend their money and how much.


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