CBDC stands for Central Bank Digital Currency. It is a currency that is issued by centralized bank. An example of a CBDC is the digital Yuan. It is a currency directly issued by the CCP (Chinese government). The advent of CBDCs accelerate the trend of a cashless society.

A cashless society is inevitable. In fact it is already here. Most purchases and transactions are done with credit cards over the internet. The only question left to answer is if this cashless society will turn into a good thing or a bad thing?

For all the editorials and opinion pieces bemoaning a digital dollar, a CBDC could actually be a good thing for everyone involved.

Let me explain

CBDC Built On A Decentralized Blockchain

Imagine a world where anyone could know the exact amount of money that each branch of the government controlled and spent down to the penny. Where large campaign donations could be tracked and monitored. All while the average person could use whatever other currency they liked best (such as Bitcoin or Monero).

That is the world that could be created if governments adopted a CBDC built on an open blockchain. A currency that operated on a similar manner to Bitcoin, but backed by the federal government. This would mean that taxes, government debt, political donations, and more would be done on this CBDC.

A system like this would keep the politicians accountable, keep inflation in check (because no one has control on increasing supply), and enable tracking and monitoring of how the government spends the money they steal... I mean tax.

In a sense this would be the best of both worlds. A somewhat decentralized trustworthy currency with the full backing of the state.

The Dark Path

While CBDCs might start seeming like an ideal solution, there is a much darker potential implementation.

Welcome to the cyberpunk dystopia of a non-blockchain CBDC. The government can block any and all financial activity they see as unfit, know exactly how much any person needs to pay in taxes, and can enact whatever monetary policy they want overnight.

They could give and take money from whoever they choose whenever they want. Privacy is but a distant dream.

You are one protest or social media post away from being unable to buy food.

Where to go from here?

No one knows what will actually happen, my guess is that governments will start rolling out sloppy CBDCs that take elements from both paths. It will have all the same issues and the old financial system but with a new coat of paint.

Only time will tell...