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To CBDC or not to CBDC, That is the Question

It is critical to start by saying that speaking about CBDCs (Central bank digital currencies) does not mean we are talking about blockchain and/or decentralization technologies that lie beneath. The implications of CBDCs are more important than the underlying technologies. In this case talking about the “how” in technology will be just a distraction.

I think a good starting point to trace transactions is the book Debt: The First 5000 Years by David Graeber. The book has a specific chapter which demystifies the myth of the barter as a base for talking about currencies. For millennia and millennia there has been an important feature of money and/or debt: privacy. Obviously, most financial transactions (by amount) are not currently private in the sense that not only the sender and the recipient know about them but financial institutions are also involved.

A different thing is to completely remove the privacy feature. Removing privacy is very dangerous. Removing privacy at a state level or worldwide level is even more dangerous. A balance between compliance and privacy should continue. I will skip the arguments against privacy based on global corruption, money laundering, terrorism, and other illegal activities because the reality shows that enough sophisticated bad actors beat systems like democracies and financial controls. Examples abound. We need to be very cautious about lobby groups. Many CoinFabrik members have decades of experience in cybersecurity and worked in several cases with organizations and governments to detect and prevent frauds.

Another problem with removing privacy is that, even if hypothetically, we live in a perfect world (whatever it could mean) there is no reason to think that world will always be perfect. Which implies that when you disclose your private information in this perfect world the future world could not be perfect and the information could be used against you. In cryptography, this attribute is called perfect forward secrecy (PFS). And, do not forget to mention the possibility of using fully homomorphic encryption to make the discussion more interesting.

All those arguments do not mean that we can correctly define CBDCs or whatever term we came up with that puts our financial systems up to date. Not only from a financial perspective but from a society point of view. For example, neobanks are not offering bank accounts for teens because they creatively discovered something new but because that audience, teens (and younger ones), priorly use mobile apps and would be completely confused if you talk about banks with them. This happens even in Argentina where you see a line of people everyday in banks!

Speaking about Argentina, in particular, there was a little push in favor of a CBDC. See Interest in Central Bank Digital Currencies Picks Up in Latin America and the Caribbean While Crypto Use Varies and What (would be) is the Argentine digital currency.

Our conclusion is that central banks should focus on modernizing their systems taking into account performance, zero fees, interoperability and payment neutrality. The discussion about CBDCs should continue but it is risky to force embracing a technology without permitting strong privacy.

Finally, we add some food for thought:
Cashless society
Swiss May Face a Future Referendum to Enshrine Status of Cash (
Pix payment system in Brazil
FedNow Is Live HackerNews discussion