PM Rishi Sunak recently announced the UK's intention to launch a Central Bank Digital Currencies (CBDC) as a competitor to bitcoin and other cryptocurrencies. But what exactly are CBDCs and what are their potential implications? What about threats and opportunities? And how does it all relate to the future of your business? Our 50 (digital) cents on the subject!

CBDCs are digital versions of money. However, unlike decentralised cryptocurrencies, CBDCs are controlled by a government and a central bank. Instead of having a bank account with a private bank, you will have one with your central national bank or European Central Bank. This means that a government would have direct control over the digital currency and how it is used. The UK and Europe have been at the forefront of this movement.

Privacy and financial freedom at risk

One of the main concerns is that CBDCs will be programmable, potentially allowing central banks to program digital cash to ensure that it is only spent on essentials or goods that an employer or government deems appropriate. No cigarettes, meat or alcohol 😉. In other words, CBDCs would work more like vouchers or coupons than traditional money. This of course has huge implications for our individual freedom and privacy.

And it is not just a hypothetical concern. China is currently implementing a social credit system that uses digital currency to control citizens' behaviour. If individuals engage in behaviour that the government deems undesirable, they are penalised by not being able to purchase certain products or services. Likewise, with CBDCs, the government would have direct access to all financial transactions, which could lead to a loss of privacy and financial freedom.

Small business, big potential

If the government or large corporations are able to control the flow of digital currency, small businesses could be at a disadvantage. This could lead to a concentration of power in the hands of a few large players, stifling innovation and competition. On the other hand: imagine being able to control your own digital money. Being able to choose, monitor and change the information you share with the companies you work with. This can remove current friction points and lead to a more efficient and secure financial system.

At the same time, the rise of digital ownership through blockchain technology will shift the power dynamic in favour of users. Digital identities, objects and assets will increasingly be stored in an online 'wallet' built on a blockchain. These web3 wallets will serve two main functions. First, wallets allow their owners to manage all their digital assets, currencies and tokens in one place. Second, the wallets are used to provide access to other blockchain-based technologies. People can authenticate themselves through their wallets, and it's pseudonymous.

Conclusion: a two-edged sword

While CBDCs have the potential to bring many benefits, such as improved efficiency and financial inclusion, they also have significant implications for our freedom and privacy. As we move towards a digital economy, it's important to consider the implications of CBDCs and their role in our financial system. In addition, we are seeing entire ecosystems emerge around decentralised web3 wallets that give people control over their data.

It's important to strike a balance between the two and try to take advantage of both to create an inclusive and flexible financial system that encourages innovation and embraces Western values of security, freedom and privacy.

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Our experts in this domain

Tine Van Hecke
Tine Van Hecke Innovation & Strategy Consultant/Manager Living Tomorrow Academy
Sven Geiregat
Sven Geiregat Innovation & Strategy Consultant