Exploring the Inverse of CBDCs — Making governments programmable
If fiat money can be programmable and controlled through CBDCs, why can’t citizens similarly control their government in real-time?
If fiat money can be programmable and controlled in real-time through Central Bank Digital Currencies (CBDCs), why can’t citizens (customers of the state) similarly control their government in real-time?
There has been a lot of talk about CBDCs in recent months. Some see it as a means to improve payment systems and financial inclusion while others see it as a threat to liberty and individual freedoms.
This has now become a major topic of debate and a rallying cry within the US Presidential Election. Donald Trump has referred to CBDCs as a “dangerous threat to freedom” that would give the federal government “absolute control” over citizens’ money.
So, what are CBDCs? According to the Atlantic Council, “A Central Bank Digital Currency (CBDC) is the digital form of a country’s fiat currency that is also a claim on the central bank. Instead of printing money, the central bank issues electronic coins or accounts backed by the full faith and credit of the government.”
Well, how does this differ from the system that exists today? Ben Bernanke explained it quite well in an interview back in 2009. When asked if the bailouts after the 2008/9 financial crisis were funded by tax money, he stated that they were not. Instead, he clarified that “To lend to a bank we simply use the computer to mark up the size of the account”.
So it was not tax money but it was money that taxed people through different means. By increasing the money supply, all existing dollars lost value — a process commonly known as inflation.
This has been the case within the G2B (Government to Business) realm — think Central Banks and Commercial Banks. CBDCs would extend this model to the G2C (Government to Consumer) domain. Unfortunately, consumers will not have the same bargaining power as commercial banks have had. Your account might get marked up with CBDCs but it could easily be marked down if you don’t play by their rules, whatever they may be.
For example when you exercise your right to protest or attend a rally in solidarity with a particular group of people.
The general manager of the Bank of International Settlement, Augustin Carstens, explains the difference quite nicely: “We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.”
That sounds wonderful 🙃
I could go down the rabbit hole of the dark side of CBDCs but I guess we all get the point so let’s shift gears.
What if we used the theory and line of reasoning employed by CBDC proponents but flipped the model entirely to demand the same transparency and accountability from our government and elected officials?
If money can be programmed and be fully controlled, can government be similarly programmed and controlled by its citizens?
Seems like pie in the sky at first but I believe it is possible and it boils down to:
Setting the right incentives while
Removing any restrictions on the flow of information and having
A real-time feedback loop between government and its citizens at all levels (municipal, provincial and federal)
This is not a novel idea in itself and was inspired by a 2011 CNBC interview where Warren Buffett rightly said, “I could end the deficit in five minutes. You just pass a law that says that any time there is a deficit of more than 3% of GDP all sitting members of Congress are ineligible for re-election.”
Currently, we have a system where leaders are elected every 4 years and once they are in power, they operate mostly without restrictions (barring any legal limitations that can challenge them internally), can renege on their promises and easily act not in the best interest of those who they represent.
For example, an extremely relevant contemporary issue is the potential genocide raging in the Middle East which is being funded by many Western governments. The same governments that are imposing austerity on their people.
Take Germany for example where farmers are protesting for weeks because of subsidies being pulled back while the government sends magnitudes more money to fuel a genocide thousands of kilometres away from them.
The US and Canada are not different. Not so surprisingly, one of the biggest institutions in the US, the Pentagon has failed an audit 6 years in a row and back in 2001 a senior official stated at a press conference that they were not able to account for over $2 Trillion in missing funds.
Now the question is, if citizens had the option to voice their opinion and vote in favour of or against their tax money being spent on such a cause, would it align with the decision their government officials made?
If the citizens voted against such an action and the government still went ahead with it, would it create serious friction and highlight how the objectives and interests of citizens are diverging from those in power?
Could this ultimately provide grounds for the removal of people in office while creating a more transparent system?
Overall, the core question becomes if governments can leverage technological innovation to keep their citizens in check, what is stopping citizens from doing the same?
I hope this piece prompts us to ask the right questions and ultimately think differently about the relationship between governments and their citizens who at the end of the day are customers that fund the government.
Please note that this piece intended to lay out the theoretical and philosophical groundwork that would set the stage for thinking about some sort of real implementation.
The technology is already here. Sentiment and thinking are catching up. I also fully understand that there are certain nuances that I might have missed and maybe it is ‘pie in the sky’ in the end.
However, I am confident that many people have thought about this and some might have tested it in some shape or form. If you are one of those, it would be great to connect and share ideas around this topic.