CBDCs – The Digital Road to Serfdom

  • Central Bank Digital Currencies (CBDCs) are anathema to the guiding principles of bitcoin.
  • CBDCs pose a fundamental threat to individual liberties.
  • The risks of CBDCs far outweigh any benefits.
  • CBDC proposals will need to be thoroughly scrutinised to avoid the risk of sliding into economic authoritarianism.

Central Bank Digital Currencies

A Central Bank Digital Currency or CBDC is a digital currency issued by a government and denominated in a national unit of account. It is also referred to as digital fiat. Unlike current cashless payment systems like credit cards, CBDCs would represent a direct claim on a central bank instead of on a private financial institution. Unlike bitcoin, CBDCs would be centrally controlled and thus probably not be using blockchain or other forms of distributed ledgers. They would be run on a database managed by central banks or private-sector partners. Many proposed systems include the existence of central bank accounts for citizens.

As of January 2021, a survey by the Bank of International Settlements (BIS) found that 86% of the 65 central banks it surveyed were exploring the possibility of CBDCs. These 65 central banks represent 72% of the global population and 91% of output. Many are moving into the experimental phase after having undergone theoretical research. The BIS’s report also estimates that central banks representing a fifth of the world’s population will be implementing CBDCs in the next three years. On 13 October 2021, the finance ministers and central bank governors of the G7 released a statement regarding CBDCs indicating some form of international coordination on the matter. The first country to have implemented a CBDC was the Bahamas, in October 2020, with its "Sand Dollar”.

The Economist, among others, is celebrating the advent of CBDCs and various governments are embracing the concept with great enthusiasm.


Proponents of CBDCs put forward a number of potential advantages. These include improved efficiency, as payments could be made directly between parties, without the need for banks and clearing houses. This would reduce the risk, cost and complexity of transactions, which is especially beneficial in a commercial context. It would also make counterfeiting impossible.


The possibility of having an account at a central bank would also foster financial inclusion, as all citizens would have access to banking services. This would presumably drive digital access forward too, as is happening in El Salvador.

By having a centralised system that keeps track of all transactions, it would eradicate many financial crimes such as tax evasion and money laundering. It would also foster banking competition, some claim, as banks would be fighting against central banks for business. This, in turn, would limit the use of the fractional reserve banking, which would make deposits safer and reduce the need for deposit protection programmes.

Finally, and perhaps most appealingly, it would allow central banks to have new monetary tools such as the direct transfer of funds to the public. As peachy as this all sounds, CBDCs require some critical analysis.


The available information regarding CBDC proposals gives rise to significant concerns. Primary among them are privacy concerns. Should countries initiate a process where CBDCs become the only or primary form of legal tender, this would imply centralised oversight over money and its movement. A report by the Congressional Research Service explicitly mentions this scenario and argues that it is likely that a CBDC would crowd out cash, private-sector cryptocurrencies such as bitcoin, private payment systems and the commercial banking system. This would be historically unprecedented.

This monetary centralisation would go against centuries of struggle against arbitrary search and seizure. In common law traditions, the limitations of arbitrary search and seizure by political authorities, are bedrock features of the rule of law. The 1765 Entick v Carrington case in the UK is considered a landmark judgment in this issue and an inspiration for the Fourth Amendment to the United States Constitution. CBDCs risk overturning this principle by eliminating the search part of the equation, as governments would already know where everyone’s assets were. This could lead to automatic seizure without even needing to search.

If this scenario seems otherworldly, one would only need to look at the disastrous overreaching effects of legislation, such as FATCA, that we discussed elsewhere. Millions of US citizens have been deprived of basic banking facilities because of government regulation. In a CBDC scenario, they could have just seized all of these people’s assets. It is no surprise that in a 2021 report by the European Central Bank (ECB), consumers repeatedly put privacy at the top of their concerns. Even assuming that robust legal frameworks are put in place to protect the citizenry, CBDCs would be a godsend to dictatorial systems, or aspiring dictatorial systems, around the world. Dictators could decide who owned what and arbitrarily seize anyone’s money.

In addition to these fundamental privacy concerns, there are other challenges. A successful CBDC would directly challenge legacy banks and clearing houses, unless they have a profitable way of participating in the rollout and management of the system. This either implies more power to banks or the gradual elimination of the banking sector. This latter outcome seems like a highly unlikely objective for governments, but the threat of it could finally unite legacy banks and bitcoin aficionados on the same front. One of the proposed solutions to this is the implementation of a CBDC ownership ceiling, where anything beyond that ceiling would have to be kept in traditional fiat. This system could lead to confusion.

Another feature of CBDCs, that is being discussed, is the additional monetary tools it could provide central banks. Central banks could airdrop money into people’s accounts to stimulate growth. As wonderful as that sounds, governments could presumably do the opposite too. They could also, terrifyingly, put an expiration date on money, as China is currently considering with its proposed CBDC. This would remove both the need for search and for seizure, as one’s money would automatically disintegrate.

The implementation of CBDCs will also stifle innovation, as they gradually crush stablecoins and all other forms of monetary competition. Finally, the thought that governments could eradicate crime through CBDCs verges on the fantastical. Hardened criminals are more likely to revert to trading seashells than using a centrally-controlled and surveilled currency.

CBDCs are the antithesis of bitcoin and risk bringing society towards economic authoritarianism. Regardless of how wonderful governments make CBDCs sound, they should be resisted unless they come with impenetrable legal guardrails that preserve privacy and freedom. As these guardrails are highly unlikely, citizens need to remain vigilant.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.