“Cryptopashism” in action: as the introduction of digital currencies of the Central Bank will affect economic freedoms

In the novel “Lead Day” (Adjustment Day), Chuck Palanik touched the concept of money with a limited “expiration date”. One of the heroes of the work wrote in his book:

“That’s why it is so important that the money has expiration date. Power transmitted from generation to generation in the abstract form of wealth leads to inequality and corruption. You can’t save money for the sake of accumulation. Money must constantly work for the benefit of society “.

Roman Palanika saw the light in 2018, and only a few years later a tool appeared in the service of the governments that could realize this idea in life.

We are talking about CBDC, the programmable functions of which will allow central banks not only to effectively manage monetary policy, but also to monitor and censorship of transactions, as well as mass surveillance.

CERP researchers consider one of the main risks of introducing national digital currencies the concentration of power in the hands of monetary regulators. For this reason, it is difficult to understand why even democratic countries study this possibility.

• Technological companies and banks have long collected user data – there is nothing new in such an “surveillance”. Monetary regulators are also interested in this information, as they use it to manage monetary policy.
• CBDC will not only increase the ability of central banks to collect data, but will also allow them to directly influence the models of consumer expenses. Moreover, thanks to programmable capabilities, digital currencies can become a real weapon.
• Experts believe that China – one of the leaders of the CBDC race – can use programmable money in conjunction with the social rating system to strengthen the power of the CPC . In case of success, other authoritarian regimes can adopt this experience.

New oil

If bitcoin is called digital gold, then data can be considered digital oil right. Back in 2006, the British mathematician Clive Hambi said:

“Data is new oil. Like oil, they are valuable, but not by themselves, but thanks to products based on them. Data must be processed and analyzed in order to extract value from them, increase business profitability “.

Therefore, there is nothing surprising in the fact that technological companies are actively collecting information about their users. To understand the scale of what is happening, just recall the scandal around Cambridge Analytica.

In 2018, it turned out that the British analytical company collected user data through its application on Facebook. The incident affected about 50 million users – the information received from their profiles was used to place political advertising, in particular during the presidential race in the United States, when Donald Trump won the victory.

Cambridge Analytica to the last denied guilt, but ultimately lost almost all customers and was forced to declare bankruptcy. Facebook founder Mark Zuckerberg acknowledged the error, but before that he answered the US Congress two times for five hours.

The Federal Trade Commission, which initiated the investigation, also drew attention to the misconducts of the social network. To resolve the conflict with the regulator, the corporation paid a fine of $ 5 billion.

After that, the Congress summoned the owners and leaders of the American Bigtech to the “carpet”, and the EU regulators expressed concern to the growing influence of these players and began to develop bills designed to curb them.

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– Margrethe Vestager (@Vestager) October 30, 2020

Technological giants, in turn, also presented a number of initiatives. For example, Apple forced the developers to clearly demonstrate what user data collect their products.

At the same time, the company planned to introduce the function of scanning photos of iPhone users for brutal handling with children. Having received an avalanche of negative reviews, Apple postponed the introduction of the mechanism for an indefinite period, but did not completely refuse it.

According to security.Org, corporations continue to aggregate user data in colossal volumes. For example, Google collects not only obvious information like IP addresses or browser history, but also more personal, such as the content of emails, geolocation and payment details.

Such companies say that they work with depersonalized data, however, the public has questions to the veracity of these statements. Especially when precedents are known for using this information in law enforcement investments.

According to court documents that fell into the hands of Forbes journalists, the US authorities secretly ordered Google to track and provide data search queries for keywords.

“Keyword Warrants” is a Thing for Google, Apparently. This was X-Files Conspiracy Theory Stuff a Decade Ago. https: // t.CO/UBDU6EC08D

– Matthew Green (@matthew_d_green) October 8, 2021

According to the publication, law enforcement agencies sent requests demanding to find information about the alleged criminals participating in trading people and violence against minors.

The corporation analyzed traffic, identifying users who introduced the requests of interest to the authorities into the search line. The list of information provided in response included, including IP addresses and collected cookies. These data allow you to identify a person.

Players of the financial technology sector, as well as their traditional competitors – banks, in this regard are not much different from representatives of Bigtech. Unless the possibilities for “surveillance”, especially in terms of payment data, they have much more.

If Google and Apple see only those transactions that are made using Google Pay and Apple Pay, respectively, as well as operations directly or indirectly related to their services, then credit organizations have a full spectrum of financial information.

Your bank knows almost everything about your cost model, knows where you live, who you work and in which store you prefer to buy products on Mondays. He is well aware of your financial situation and health status. He knows what devices you use, and in some cases even has biometric data.

All this information opens up great opportunities for analysis, including behavioral.

However, consumer information is interested in not only the private sector, but also the state. Moreover, central banks are in line for user data one of the first.

Suerf economists noted that most monetary regulators (~ 80%) use Big Data to achieve the goals of monetary policy and financial stability, as well as the analysis and development of strategies.

According to experts, the interest of the Central Banks in this segment is only growing, and the main obstacles on their way are the imperfection of the IT infrastructure and the “outflow” of data to commercial institutions.

Regulators request information from the players of the private sector or develop their own technological platforms. Both approaches give the result, however, it is obvious that the second is preferred.

For example, the Chinese authorities obliged local financial companies to provide data on customers and borrowed funds to state credit agencies. Ant Group has already agreed to fulfill this requirement.

The Bank of Russia completely monopolized the collection of biometric data, and the system of quick payments, the volume of transactions through which in separate credit organizations has already overtook transfers from card to card, allows the regulator to collect information about citizens’ operations.

And if commercial banks and technological companies “Digital Oil” are needed to increase business profitability, then monetary regulators have much more ambitious plans.

“Evil Double” bitcoin

BIS calls CBDC “digital banknotes”, which, as the economy was digita, will maintain consumer access to the “safest form of payment”. The latter, according to experts, are the requirements for central banks.

A similar definition is given by the Bank of Russia. According to the regulator, the digital ruble will become an additional form of the Russian national currency, which will be issued in virtual form. It is assumed that it combines the properties of cash and non -cash money.

According to Atlantic Council, the development of such tools is engaged in the central bank of 81 countries. Together they represent over 90% of the global GDP .

Other numbers are given in the IMF. According to the executive director of the organization of Kristalina Georgieva, at one stage or another of the study of CBDC there are 110 countries. She emphasized that the only state that introduced the national digital currency are the Bahamas of.

The CBDC design approach may differ – it is not at all necessary that each project is based on blockchain technology. The distribution models of digital money are also different – their distribution can be directly engaged in the central bank or commercial structures that delegated this function

In any case, this form of money offers a number of undeniable advantages, including:

• financial inclusion;
• increasing the efficiency of payments;
• expansion of the tools of fiscal policy;
• reduction of calculated risks and reduction of costs for participants in the corporate sector;
• Increasing competition in the financial services market.

At the same time, CBDC can become an instrument of suppression of freedom. Monetary regulators will gain the ability to directly, and not indirectly, to influence the model of consumer expenses and gain access to a huge array of data.

The Director of the Strategy of the Human Rights Fund Alex Gladstein wrote:

“The displacement of cash and the possibility of instant analysis of financial transactions will allow you to monitor, state control and, ultimately, use social engineering on a scale that it was impossible to think about before”.

The author of Bitcoin: The future of money?”(Bitcoin: The Future of Money?) Dominic Frisby adheres to a similar opinion. He noted that the main disadvantage of CBDC is its programmable capabilities.

According to Frisby, while the fiat currency involves a certain freedom, the digital fully excludes it. Governments will also receive direct access to user wallets, which will easily collect taxes or fines – for this you will just need to change a couple of lines of code.

“The all -seeing government will see every deal,” the writer added.

In his opinion, programmable money functions can be used against individual objectionable persons or as a weapon in an economic war. Integration with social rating systems opens even wider opportunities for punishment or reward.

It can be reasonably noticed that payments are subject to strong network effect, and transactions with CBDC are no exception. Perhaps no one will forbid people to use banknotes or traditional electronic money, but the reality is that with the advent of a more perfect tool, it inevitably conquers a significant market share of more archaic.

The trend of cash refusal is already marked by many countries. According to the Central Bank of the Russian Federation, in Russia, the share of non -cash payments reached 75%. In Switzerland, only 43% of citizens use banknotes for settlements, although back in 2017 the indicator was at the level of 70%.

Many suggest that physical money will not disappear anywhere due to the so-called “cash paradox”. However, this phenomenon is more due to the fact that against the backdrop of a crisis, consumers withdraw money from banks and store the savings of the house – the real turnover of banknotes does not occur.

Another indicative example is the legalization of bitcoin in Salvador. The population was not familiar with cryptocurrencies, and many questions arose to the actions of the authorities, but this did not interfere with the Chivo wallet quickly become popular.

President Nayib Bukla in September said that the application “actively uses” 2.1 million inhabitants of the country. Skeptics believe that real numbers are much smaller – about 784,000. However, given that the law on the recognition of bitcoin entered into force only on September 7, 2021, the result is still impressive.

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– Steve Hanke (@steve_hanke) October 11, 2021

Electronic money used now are notes in the databases of commercial banks and payment systems. Their value is due to one simple fact – these bits of information can be exchanged for paper banknotes, which are a requirement for the Central Bank.

CBDC crosses this function, so the need for the above tools will disappear.

To avoid the collapse of the traditional banking system, the regulators will almost certainly introduce certain restrictions. For example, the Central Bank of the Russian Federation will not accrue interest on the remains in wallets with digital rubles. This will allow credit organizations to maintain part of deposits income.

However, the players of the financial sector foresaw the upcoming digitalization of money and today transform their business in order to comply with future realities. Payment systems can become a link between CBDC different countries, and banks – intermediaries in the distribution of digital currency.

For convenience, people will have to pay economic freedom. That is why the former NSA employee and CIA Edward Snowden considers the instrument “the latest danger overpowering society”.

“CBDC is something close to the perversion of cryptocurrencies, or at least their fundamental principles and protocols. Cryptophashist currency, an evil double, clearly intended to deprive users of ownership of their money and make the state an intermediary in each transaction, ”he wrote.

Red – hit season

Among developed countries, China leads in the CBDC race. Here the tool is at the final stage of pilot tests – as expected, the general public will gain access to it in February.

Over the past year, the PRC systematically prepared the soil for launching e-cny . The authorities developed the relevant regulatory framework and modernized the infrastructure.

Some experts also believe that part of this large -scale campaign is the actual ban on cryptocurrencies, mining and activities related to digital assets of organizations.

The successes of China in the field of CBDC development make it possible to understand how integration of digital currency can affect the economy and society in other countries.

The People’s Bank of China (NBK) has begun studying digital currency back in 2014. For a long time, the project was not heard, however, after the announcement of Facebook, the Libra Global Steabelcoin in 2019, the regulator said that the E-CNY prototype is almost ready to launch.

In July 2021, the NBK published a technical document dedicated to the digital Yuan. It became clear that the tool is compatible with existing payment systems, even available to residents of foreign jurisdictions and is ready to use in cross -border calculations.

The Chinese Central Bank emphasized that E-CNY supports anonymous transactions subject to their small volume. Translations of large amounts are monitored. According to the regulator, the digital yuan system collects less information about user operations than existing payment systems, and does not provide these data to third parties.

NBK also first officially confirmed that CBDC supports smart contracts and is a programmable tool.

Earlier, testing in the capital of the Sichuan province showed that E-CNY can be used to use it. During the tests among the population, digital money was distributed, which allowed to spend exclusively on payment of transport through mobile applications Tianfutong and Meituan .

The NBK document does not indicate whether the digital yuan will be integrated with the social rating system operating in China (SOCS), however, specialists do not exclude this possibility.

The analytical center CNAS believes that the CCP uses E-CNY in conjunction with SOCS to strengthen its power.

“This technological jerk is an important step in expanding the digital authoritarianism of the party. […] In addition to user information and transaction [CPC] will receive various metadata associated with the movements of people and devices. NBK will become the owner of a significant array of data, which can be combined with censorship and observation tools, ”experts write.

At the Merics Research Institute, the social rating system is called “part of the vision of Xi Jinping Management based on data”. Analysts believe that the CCP is pursuing a very specific goal – to expand the analysis of the information coming from existing sources for consolidation and strengthening power.

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– Merics (@merics_eu) march 4, 2021

Despite the name, SOCS is sufficiently fragmented and is rather a “foundation” with which several initiatives can be integrated, including digital https://gagarin.news/ yuan.

47 state departments under the leadership of the NBK participate in the formation of this “system systems”. The direct involvement of the latter is another argument in favor of the reality of this ligament.

The system of social rating is focused on compliance with existing laws, but state bodies can abuse such power. When Beijing introduced in the schools of internal Mongolia a mandatory study of the Mandarin dialect, parents who took children from these educational institutions threatened to blacklist.

A person recognition system also works in China, which allows you to find and detain a person in just seven minutes. All these components, together, expand the repressive capabilities of the government. What is even worse, in case of success, other authoritarian regimes can adopt the experience of Beijing.

Sustainable money

In 2009, the creator of Bitcoin Satoshi Nakamoto wrote that the main problem of fiat currencies is that their work requires confidence in issuers – central banks. And the latter have repeatedly proved that they should not trust them.

“The Root Problem with Convention Currency is all the Trust that That’s Recuired to Make It Work. The Central Bank Must Be Trusted Not to Debase The Currency, But the History of Fiat Currencies Is Full of Breaches of that Trat Trat Trat Trat Trat Trat Trat Trat Trat Thatt.”

The book “Theory of Money and Credit) economist of the Austrian school Ludwig von Mizes emphasizes that sustainable money (Sound Money) belong to the same category as the Bill about the rights of rights.

“It is impossible to understand the meaning of the concept of stable money, if you do not realize that it was developed as a tool for protecting civil freedoms from despotic attacks by government”.

In turn, CBDC is a tool of monetary control – it does not solve the problem of fiat, but only exacerbates it.

In the current realities, the introduction of national digital currencies near countries – the question “when”, and not “if”. As in the case of fiat currency, their strength will be determined by the strength and influence of the central banks standing beyond the issue.

The experiments of weak economies will probably not be able to have a significant impact on the global financial system. However, the experience of leading countries, if it turns out to be successful, will cross other, even nominally democratic.

In a world where CBDC is a priority means of calculations, including cross -border ones, there will be no room for private life. After all, a tool that positions as a way to increase financial inclusiveness will eventually play the role of a strangulation on the neck of economic freedom.

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