There was an episode in Black Mirror titled Nosedive where the plot revolves around a society that has adapted to a new norm of living where social scores greatly affects ones socio economic status and how they were treated. The better your score, the more discounts and privileges you enjoy. At the same time, it has its negative effects as having a lower score prevents you from enjoying the better things in life.
While this episode is completely fiction, a somewhat similar system is already in place in China called the social credit system. This aims to establish a record system that measures and evaluates trustworthiness of an individual, organization or even business entities. Imagine that your credit application and the interest rate that would apply on your loan will be dependent on this accompanied by your credit rating. To no one's surprise this system received a lot of criticism mainly arousing from the authoritarian rule implemented by the Communist part.
Before we proceed I would like to share a recent article I published in regards to HyperInflation. This could be worth reading if you are living in an unstable economy.
If you are reading this then chances are you are not from China and might be thinking that there could be minimal to zero effects on your personal life with whatever is happening inside the Red Dragon. Nothing could be further than the truth as China and their central bank has a huge influence in the global stage. And at this moment the People's bank of China is the leader in the development of national digital currencies with other nations playing catch up.
So what's wrong? Well there are many frightening scenarios. First, let's go back to the black mirror episode, what if your social rating takes a plunge. Is there still a way for you to bounce back? Also note that the CCP is closely monitoring its people with a strong authoritarian rule. The country has highly advanced facial recognition systems partnered with an absolute control of media censorship. Personally and as a citizen of a democratic country, I deeply believe in press freedom and oppose this kind of news blackouts. Now let's see why China desperately wants to lead in the race for control of digital assets.
CBDC(s) are not all bad. It has its practical and effective applications compared to traditional banking. Say for example during a national calamity. Funds can be instantaneously transferred to its citizens at even lower costs. It is the age of the internet and the move to a more digital world makes money accessible to humans across the globe.
Now the terrifying part, China is a surveillance state. It is the biggest CCTV in the world. The wide adoption of their CBDC will not be limited to financial transactions alone. Data is being gathered and collected. Once this data is centralized, it gives full control over its citizens and can silence those that disagrees with their policies. Now this isn't only for their country, remember that every powerful nation is also scrambling to lead in the CBDC space. Information is power.
Another scary part is that CBDCs are programmable. Meaning you don't control the money that you own, more like just holding. It can be programmed to have an expiry date, maybe deactivate or freeze your assets if your are seen to be a bad actor. So yeah this might be good and will have its perks --- but the problem is who defines bad actors? Will that include political opponents? Maybe.
One advantage this will give to a country is in global trading. The practicality, speed and efficiency of a CBDC might make their digital currency more attractive and be widely adopted and take a bigger slice of the pie in the global financial sector. If this happens, western banks and payment networks like SWIFT will have reduced transactions and effectively weaken the position of the dollar. Although this could still be far off as the USD is still in a very dominating position.
Let me know what's your take in this topic. Are you comfortable having CBDC that's controlled by a single nation? Will you be using it on a day to day? Will the US be able to catchup?
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