cbdc | Cryptobeyer

Back then, we needed to hide our precious shells in the shed. Thieves swiped our metal coins and nowadays we hide our Bitcoin off-line. History serves as a stark reminder of our enduring concerns: from ancient times to the present day, privacy in finance has always been a political issue. Here’s a fresh historical perspective on our fear of government controlled digital money.

In the early days of human civilization, people relied on bartering to trade goods and services directly. However, as societies progressed and became more complex, the need for a standardized form of currency became apparent. Even in these early times, individuals were wary of privacy issues, aiming to protect the value of their traded items from unwanted attention.

The introduction of metal coinage around 600 BCE marked a significant advancement in monetary history, providing a standardized currency for trade. While metal coins offered greater convenience, they also presented new privacy challenges. Wealth stored in physical form became vulnerable to theft and manipulation. More secure monetary systems were needed. Then what happened?

The transition to paper money during the Middle Ages further complicated privacy issues. Governments and merchants began issuing paper currency backed by precious metals. Now concerns about counterfeiting and financial surveillance grew. The establishment of central banks in the 17th and 18th centuries aimed to address these challenges but raised new questions about privacy and economic autonomy. Remember there was still no internet…

I know they are far from perfect… but I would also say that the single most important win with central banking was the ability to effectively manage and stabilize the economy through monetary policy. Central banks have the power to adjust interest rates, regulate the money supply, and influence economic activity to promote growth while mitigating inflation or deflationary pressures. This control over monetary policy allows central banks to respond to various economic challenges, such as recessions or financial crises, thereby maintaining stability and nurturing long-term prosperity.

However, central banking also raised concerns about privacy infringement and government surveillance. Individuals feared that centralized authorities could monitor their financial transactions, compromising their privacy rights. At this time, internet connectivity remained limited.

It’s starting! The digital revolution of the late 20th century transformed the way we conduct financial transactions, introducing electronic payments, credit cards, and online banking. While these innovations offered unprecedented convenience, they also increased concerns about data privacy and cybersecurity. Individuals became increasingly wary of sharing sensitive financial information online, fearing identity theft and surveillance. By the early 21st century, approximately 5-10% of the global population had access to the internet, and digital financial services started appearing.

You guessed it. Bitcoin was introduced in 2009 and promised a decentralized alternative to traditional fiat currencies. Yes, it also offered enhanced privacy and security through blockchain technology. However, while cryptocurrencies initially appealed to privacy-conscious individuals, they also raised regulatory concerns about illicit activities and money laundering. As internet access expanded, reaching around 40-50% of the global population by the present day, digital transactions obviously went through the roof.

Naturally, in response to the digitalization in society and the rise of cryptocurrencies, central banks began exploring the concept of CBDCs. But centralized issuance and oversight could enable governments to monitor and track individuals' financial transactions. This is good and bad depending on the individual.

With internet connectivity nearing universal levels, with over 90% of the global population online, what's a government to do? We go fully digital.

History serves as a stark reminder of our enduring concerns: from ancient times to the present day, privacy in finance has always been a political issue. Even in nations like Sweden where trust in institutions runs high, staying vigilant is essential. I would say that CBDCs offer a everyone a fair shot at participating in the digital economy. It's not just about putting blind trust in governments—it's about raising our voices for transparency and fairness. In our knowledge-based democracies, we have the power to shape the digital landscape, preserving our autonomy and security by voicing our opinion and using our vote.

109 countries and central banks worldwide are exploring the potential of launching a digital version of its currency. The Bahamas have launched their Sand Dollar and Nigeria the ENaira. India says it will launch the digital rupee in 2023. China is in the forefront of launching its digital yuan and will broaden its testing to several regions in 2023. USA, Canada, UK are in different stages of the development of a CBDC (central bank digital currency). But what about Sweden?

First, what is a CBDC? Simply put, a CBDC is a digital version of a country’s currency. It is not the same as a cryptocurrency. A CBDC is backed by the credit of the government in the same way as a regular currency and a cryptocurrency may be pegged to an asset or fiat currency. Another major difference between a CBDC and a cryptocurrency such as Bitcoin is the fact that a CBDC is controlled by the government, but Bitcoin is decentralized. Wait!

Why is it important to consider centralization or decentralization when we talk about digital currencies?

Well, one of the biggest reasons that China is headfirst in fully launching its digital yuan is that they aim to limit the power and market share of the private sector. The powerful Chinese private financial technology sector with actors like Alibaba and Wechat control a significant part of domestic transaction. It is difficult for the Chinese government to fully implement the digital yuan since it is very easy for the public to pay for services through these private entities. The government need to create digital wallets for the population and lack of privacy is a reason why the Chinese population is hesitant to start using the digital yuan.

Not even I as a Swedish citizen would blindly trust the Swedish government in providing a digital wallet to store my E-krona. With a government-controlled wallet every purchase could be tracked by the government. I do not think that the current government of Sweden is interested in me buying a bottle of wine at Systembolaget, but at what point is my economic life a personal matter?

Anyhow, Sweden will be cashless. Sooner than we might think. Cash is not king anymore. Only about 18 percent of all consumer transaction are in cash. The digital e-krona is the future of Swedish money. According to the Swedish Riksbank the E-krona pilot initiative is running and has gone through various phases. The bank Handelsbanken and the technology company Accenture and key players along with the Swedish Riksbank have actively tested the E-krona in a sort of a beta test. The result so far indicate that the Riksbank still need to know the effects an E-krona may have on the Swedish economy. Further research is needed and various technological issues and question appeared in the test period that are also common in the crypto industry. How will people store their E-krona? What digital system will be used for safe and trustworthy transactions?

The government will never use an existing blockchain to implement the Swedish E-krona because it needs to have full control of the currency. Using an existing crypto stable coin is off the table. The Swedish Riksbank has used a blockchain technology on a platform called R3 Corda platform when testing its CBDS but the result was not satisfactory and an alternative technological method need to be found in the future.

It is not entirely easy to launch the E-krona as some groups in society may have problems with its technical use. A range of technological and social issues need to be considered. I think that the digitalization of the Swedish currency cannot be stopped but needs to follow the guiding light of the values of society. The E-krona will not be something that we as citizens vote on. It will be implemented in stages whilst the current cash system is incrementally dismantled. The E-krona will likely not see the light of day until 2030.