The Bank for International Settlements (BIS) has launched "innovation hubs" to explore initiatives in the crypto and cyber worlds, including helping to create central bank digital currency (CBDC) projects across the globe. The initiative is part of an effort to break the stuffy image of central banking and make central banks more adaptable to digital currencies. However, many crypto enthusiasts believe that central bankers are too old-fashioned to understand the innovative power of digital assets and that the only reason central banks are playing with CBDCs now is to crush private-sector tokens that might challenge traditional currencies. There are also concerns that the innovation could leave banks controlling vast quantities of citizens' data and undermine the role of commercial lenders, and some experts believe that CBDCs are "a solution in search of a problem". The two cultures of central banking and digital assets remain very different, with central bankers valuing stability and operating within hierarchical power structures, while tech entrepreneurs value "networks" and want to disrupt the establishment by taking bold steps and risks. While some attempts are being made to bridge the divide, each culture believes that it should have the upper hand.
Over 85 central banks are working on creating digital currencies, as governments look to provide faster payments, more financial inclusion, and reduce the popularity of cryptocurrencies and big tech. However, many citizens are concerned about the intrusion on their private lives, and some are unsure what benefits a central bank digital currency (CBDC) could offer. CBDCs could have radical implications for private lenders, which would face liquidity shortages if money shifted into state coffers. Policymakers could impose holding limits, or offer limited or no interest on deposits, but that would impede take-up of CBDCs.Where CBDCs have been launched, adoption has been slow, such as in Nigeria and China, where citizens are sceptical about the lack of trust between citizens and the government. Still, as mentioned also in a recent Forbes article (https://www.forbes.com/sites/digital-assets/2023/03/15/how-africans-are-using-bitcoin-without-internet-access/?sh=68d2d2f77428) and on the Nasdaq webpage too (https://www.nasdaq.com/articles/bitcoins-lightning-network-is-enabling-instant-fiat-transfers-between-europe-and-africa), “there’s a growing population of Africans without reliable internet access that are still using bitcoin for peer-to-peer transactions thanks to a solution called Machankura.” Machankura is a solution created by South African software developer Kgothatso Ngako to enable Africans to access Bitcoin, even without reliable internet connectivity. Machankura offers a USSD interface for the Lightning Network, which can be accessed through a mobile phone’s telecommunication network. It is already being used by around 2,900 African users across seven countries, including Nigeria, Kenya, Ghana, Uganda, and Namibia. The USSD protocol, which is often compared to SMS, allows forwarding requests to online applications that Bitcoin users can tap into, even if their phone does not have internet connectivity. Machankura offers a Lightning-friendly Bitcoin wallet, allowing users to send and receive Bitcoin to a wallet associated with a username or phone number, or any other Lightning wallet using a Lightning address. Africa's growing tech industry has a unique context that presents a business advantage for technologists looking to reach the 2.9 billion people that the International Telecommunications Union estimates still lack reliable internet access. The popularity of Machankura shows that the Bitcoin economy can incorporate low-income populations without reliable internet access. Phone usage in Africa is widespread, with 74% of sub-Saharan Africans using SIM cards, and that number is estimated to rise to 84% by 2025. However, there are some challenges that Machankura must overcome. USSD does not use encrypted messages, making communication easily intercepted by third parties, which is not ideal for situations requiring privacy. The Machankura USSD service is currently custodial, which means that users do not own their keys and could potentially lose their funds. The team behind Machankura is experimenting with programming SIM overlays as Lightning signers to make Lightning payments over USSD reliable, secure, and censorship-resistant. Moreover, every USSD request to the Machankura application is forwarded to Machankura’s servers by a third party, which could potentially be forced by the government to take down Machankura or cancel the service. To solve this issue, the Machankura team is thinking of hosting the service as a mobile virtual network operator. Finally, using an app hosted on specific mobile network operators means that the service is limited to certain countries where the mobile operator’s network is available, so scaling the service means integrating with more mobile network operators.
In Europe, a 2021 European Central Bank consultation found that citizens were deeply concerned about the implications for privacy of a CBDC. There are also concerns that too much anonymity could allow users to break their own strict anti-money laundering and anti-terrorism rules. Fabio Panetta, the ECB executive overseeing the project, has tried to reassure critics, saying the central bank would not be able to access people’s personal payments data. However, officials in the US are brushing up against popular resistance, particularly as the government is under fire for high inflation, with digital dollars being dubbed “Biden bucks” and “Biden coin”.
Governor Ron DeSantis has introduced a new legislative proposal aimed at protecting Floridians from the potential negative consequences of the Biden administration's plan to launch a Central Bank Digital Currency (CBDC). The proposed legislation aims to protect consumers and businesses by prohibiting the use of a federally adopted CBDC as money within Florida's Uniform Commercial Code (UCC). Additionally, it institutes protections against a central global currency by prohibiting any CBDC issued by a foreign reserve or foreign sanctioned central bank. He argues that the Biden administration's efforts to inject a CBDC into the financial system are about surveillance and control, whereas a centralized digital dollar will stifle innovation and promote government-sanctioned surveillance, threatening personal economic freedom and security. He also calls on other likeminded states to join Florida in adopting similar prohibitions within their respective Commercial Codes to fight back against this concept nationwide.
The potential consequences of a federally controlled CBDC include the government's ability to see all consumer activity and cut off access to goods and services for consumers. Unlike a decentralized digital currency, a CBDC is directly controlled and issued by the government to consumers, giving government bureaucrats unprecedented control over the financial system. Furthermore, a federally sanctioned CBDC as proposed by the Biden administration would diminish the role of community banks and credit unions in the financial system, as CBDC currency would be a direct liability of the Federal government, rather than of a chartered financial institution.
The Florida Governor has been vocal in his opposition to the Biden administration's attempts to inject woke ideology like Environmental, Social, and Governance (ESG) into the financial system too, as he believes that the proliferation of woke ideology into the financial sector and American daily living is a threat to individual privacy and economic freedom.
Overall, Governor DeSantis's proposed legislation aims to protect Floridians from the potential negative consequences of a federally controlled CBDC. The legislation is part of a broader effort to push back against an overreaching federal government and defend individual rights, economic freedom, and privacy. By prohibiting the use of a federally adopted CBDC within Florida's UCC and instituting protections against a central global currency, Governor DeSantis hopes to set an example for other US States to follow in fighting back against the concept of a federally controlled CBDC.