Central Bank Digital Currencies – A Sheep in Wolf’s Clothing?

Central Bank Digital Currencies – A Sheep in Wolf’s Clothing?

By Duncan Whitmore

The past twenty months or so of COVID hysteria have seen a rapid increase in the destruction of what remains of Western liberty. Those controlling the present political and economic order are desperate to steer us out of its irreversible demise into a replacement system in which their own power, control and wealth will be maintained. Regardless of whether one regards the emergence of COVID-19 as a planned event or merely an opportune occurrence, there is now little room for believing that public health is the primary motivation behind the smorgasbord of lockdowns, restrictions, vaccine mandates and COVID passports. We are being herded into a digital straitjacket of regimentation and control, a process, which, if left unchecked, could see state/corporate surveillance monitoring our every waking thought, movement, purchase, utterance and association.

However, as readers of my work during this time may recall, I have always doubted the ability of the COVID panic to accomplish all of this in one go, if only because people expect pandemics to wane after a year or two. Thus, unlike the bogeymen of yesteryear – Soviet communism and Islamic terrorism – viruses are difficult to paint as a permanent threat necessitating an ongoing sacrifice of freedoms in exchange for security. At the beginning of this year we suggested that governments would eventually begin to haemorrhage public trust over their policies on vaccines and restrictions. The reason this has come to pass is not merely the mission creep of shifting goalposts or the haphazard instatement, dropping and re-instatement of measures left, right and centre. Rather, it’s that governments are trying to square the circle by selling vaccines as a golden ticket back to freedom on the one hand, while, on the other, demanding that we suffer repeated “booster shots”, vaccine mandates and vaccine passports – all of which suggest that vaccines don’t actually work that well in the first place. Indeed, governments are having to admit as much when justifying these additional measures. Moreover, if restrictions are re-imposed regardless of vaccination status, or if “booster shot” requirements cause one to slip in and out of the category of “fully vaccinated”, governments themselves simply annul any propaganda aimed at blaming the whole saga on “the unvaccinated”. Thus, the notion of there being some other agenda of permanent regimentation and control has seeped into the public psyche. All of this is comes in spite of the fact that governments have, thus far, managed to prevent the possible extent of vaccine injuries from being examined in the full light of day.

Nevertheless, even I am amazed at the size and effectiveness of some of the resistance in the form of massive protests and walkouts for vaccine passports and mandates, much of which, of course, goes unreported in the mainstream media. Such pushback is being experienced in pretty much every country where these measures have been introduced, their aim being to all but crush the ability to work, shop and live if one fails to fall into line. Those amongst the right who overestimate the ability of the state and its string pullers to control actual outcomes may suggest that all of this – together with supply chain disruption, price inflation and shortages of basic goods – is simply planned chaos designed to facilitate either a controlled demolition of the economy and/or a bigger crackdown later on. True enough, political leaders seem to be doubling down, wilfully blind and deaf to the disasters their policies could cause. But plans for greater control may amount to little when, for instance, in the US, vaccine mandates are also alienating the government’s own enforcement mechanisms. It’s going to be difficult to impose martial law when you’ve sacked half of your army while screaming at the remainder to confront their “white privilege” in service of an inherently racist nation.

At the time of writing the UK seems to be one of the least draconian countries, barely dipping its toe in the water with vaccine mandates for care home and NHS staff, while vaccine passports for limited settings are confined to Scotland, Wales and soon to be in Northern Ireland (all of which are still abominations, to be sure). This may be because politicians have sensed the need to redirect the spotlight onto the COP26 climate jolly that has been going on in Glasgow for the past two weeks; even governments know that they can’t polish too many turds in one sitting. However, the recent re-elevation of the climate agenda, with the screeching effort to morph zero-COVID into zero-carbon, shows in and of itself that we are not done with the mission to completely control our lives; in the coming years we can expect more distinct events and crises, building on the back of the precedents set during COVID, to be rationalised as excuses for pushing us through further societal transformation into a technocratic dystopia.

One of the hammers nesting in the state’s toolbox in this regard is Central Bank Digital Currencies (CBDC). CBDC would be nominally similar to private cryptocurrencies (CC) in the sense that the monetary medium would be an electronic token stored on a digital wallet (or some other device). Indeed, attempts are being made to cash in (no pun intended) on the benefits that CCs have demonstrated; it is no accident that a possible British version is being referred to colloquially as “Britcoin”. Unlike CCs, however, the operation of CBDCs would be fully centralised under the control of a state’s central bank, potentially allowing the latter to make deposits and withdrawals directly to each wallet. Further “features” could include the “programming” of particular currency units, such as introducing expiry dates so that you would have to spend a portion of your balance within a particular timeframe, or restrictions on the types of merchant with whom you could transact.

The role of CBDC in the grander scheme of state control is not difficult to imagine, at least, that is, if it was to serve as a complete replacement for traditional cash, bank accounts and credit cards (which seems likely). Any allocation of a CBDC wallet would likely burden a citizen with a unique identifying number, with the state being able to control and monitor your spending patterns, directing your purchases into “approved” channels – some of which may be tied to a rightfully feared social credit score. For instance, your CBDC wallet may be programmed with a “carbon allowance” designed to block your spending if the total “carbon footprint” of your purchases exceeds a certain amount within a specified period of time. Such a restriction would amount to a de facto rationing of “polluting” goods such as fuel, travel or plastic items. Indeed, Boris Johnson himself raised more than a few eyebrows in this regard prior to the COP26 conference by tweeting that the climate war would include “action on […] cash”. Similar incursions into purchasing decisions could be made in the name of health, such as spending limits on sugary foods, alcohol and tobacco, and, of course, making sure you are up to date with your vaccinations.

CBDC could also allow central banks to wield the influence of monetary policy more directly, with, say, the ability to impose negative interest rates on CBDC balances. By depriving people of the ability to avoid such penalties through withdrawing hard cash, central bankers are likely to be far bolder in their attempts to encourage rapid spending so as to “stimulate” the economy. Needless to say, persistent inflation would almost certainly become the norm, especially as central banks could could simply create new currency units and credit them to any wallet holder directly – probably favoured corporations and/or those with the appropriate “green” credentials, etc. And, of course, any question of tax avoidance or evasion would be out of the question, with the authorities being able to track every transaction before dipping directly into your personal digital wallet to ensure that you have paid your “fair share”.

It is already doubtful whether some of these features have any realistic chance of operating smoothly. The “programmable” feature is a case in point. Let’s say, for instance, that the British government introduces its CBDC, which we shall refer to as the e£, and that this e£ could be programmed so as to restrict the categories of merchant with whom you could spend the money. In the first instance, e£s could not be programmed while regular £s were still circulating as legal tender with free exchange between the two forms of currency; it’s obvious that people would just reject receiving payment in the restricted e£ in favour of the unrestricted £, and, in any case, they could just exchange their e£s for £s so as to bypass any restriction.1 Thus, either the regular £ would have to be eliminated first to leave e£ as the primary medium of exchange or, at the very least, exchanging e£ into £ would have to be restricted in some way.

Once the regular £ is abolished, however, if e£s of varying restriction are circulating together, restricted e£s will be less desirable and, hence, less valuable than unrestricted e£s. Governments are likely, however, to mandate that merchants accept all e£ units as being of equal value. Thus, the first thing we will see is something similar to the situation described by Gresham’s Law: people will be more eager to spend their less valuable, restricted e£s while saving their more flexible, unrestricted e£s. A corollary of this will be peculiar bouts of inflation and deflation if the ratio of restricted to unrestricted e£s fluctuates (a likely consequence of continued reprogramming of the currency units), particularly in industries which are able to accept restricted e£ as payment. If the proportion of restricted e£ rises while that of unrestricted e£ falls, spending with those merchants which can accept restricted e£ will rise, and so their prices will increase. If, on the other hand, the proportion of unrestricted e£ was to increase, those same merchants would see a concomitant outflow of spending and falling prices. However, it isn’t necessarily the case that other merchants, who can accept only unrestricted e£, would see an equal and opposite rise in spending. Most likely, a greater proliferation of unrestricted e£ will result in increased saving of the more valuable type of currency unit, especially if people anticipate their future income being in the form of restricted e£.

Another effect is that people will be eager to find any way possible to circumvent restrictions on particular e£s. Most likely governments will ensure that only large, approved corporations (e.g. supermarkets or Amazon) will be able to receive the most heavily restricted currency units. Thus, governments could probably ban the direct exchange of restricted e£s for unrestricted e£s fairly successfully. But it couldn’t necessarily preclude all sorts of roundabout ways in which to recycle or otherwise avoid restricted e£s. For instance, people could spend their restricted e£s on “approved” goods and services before then reselling them, at a discount, for unrestricted e£s, which they can spend as they like. The heavier the restrictions on particular currency units the more elaborate will be the carousels of fake transactions recycling goods and currency. Or, more likely, to avoid any chance of state monitoring, the whole thing might just push people towards using gold and silver in the black market for coveted goods and services which they can’t buy with their restricted e£s.

The urge to avoid restricted e£ will be a factor in the receipt of money also. Those paying money with a desire to restrict the ability of the recipient to spend it could do so only by offering a discount. For instance, if an employer wanted to pay an employee a salary in restricted e£ (say, limiting his purchases on alcohol), he might have to offer a salary of e£30,000, whereas if he was to pay in unrestricted e£ he could get away with paying only e£25,000. Such a fact is likely to deter companies from paying salaries in heavily restricted e£, unless the cost of the restriction was outweighed by additional productivity or governments forced all employers to pay salaries with the same restrictions.

But the worst possible outcome is the complete destruction of a critical quality of money: the fungibility of the monetary unit (i.e. one unit is the same as any other unit). Homogenous currency units provide a common standard by which to compare heterogeneous goods and services in the economy, thus making cost accounting possible. But if monetary units also become more heterogonous and are not valued at par then this becomes more difficult. If you have spent five unrestricted e£s on apples and four restricted e£s on bananas then you cannot compare your spending on the two commodities because you no longer have a common denominator. If e£ units are circulating with many, many degrees of tailored restriction trading at a variety of de facto exchange rates against each other, then for ordinary people e£s wouldn’t function as money at all; instead, they’d just be an array of vouchers to be redeemed on an allotment of approved goods – in other words, more like a digital ration book. If the e£ balances of businesses were subject to a similar array of restrictions the result could be paralysis of economic calculation and the return to at least a partial state of barter. Given the possible magnitude of such a problem, most likely the state will reserve the privilege of “programming” money for itself, and will do so in only a reserved, uniform manner – i.e. everybody would have to spend their e£ balances in a certain way or by a certain expiry date.

The biggest stumbling block, however, is trying to imagine how CBDC could quickly become the dominant method of payment so as to replace paper currencies, moving us onto a new, monetary order.

If the reach of CBDC is meant to be global, one initial problem is the fact that the present practices of internet banking and swiping plastic are the preserve of the relatively affluent. As Bill Sardi points out, 1.2 billion of the world’s people have no bank account at all, while 773 million are illiterate. Such a sizeable chunk of the population being unaccustomed to using any kind of electronic transaction will prove to be a significant headache when it comes to nudging them onto CBDC – far more so if they also lack the intellect to comprehend how it works. Nor should it be assumed that such people are confined exclusively to underdeveloped countries; according to the Federal Reserve, 63 million of the under-banked reside in the United States – more than one fifth of the nation’s adults.

That aside, however, there are at least two further hurdles on the track towards establishing CDBCs in any one jurisdiction: first, establishing a value for the currency unit in the first place, and second, promoting the digital method of transaction as opposed to existing cash, credit cards and bank accounts.

Regarding the first problem, as “Austrians” we know that a monetary medium cannot be conjured out of thin air without a frame of reference for its value. Either it must have pre-existing use value (as in the case of gold or silver) or its value must derive from that of an existing monetary medium (in the way that our paper notes originally derived their value from that of the precious metals they replaced). Compounding this problem is the fact that, empirically, it has always been quite difficult to wean people off of a particular medium once it is has been established as generally accepted. Governments could not introduce worldwide fiat all in one go and, in fact, such a monetary order has existed in its entirety only since 1971. Instead, the process of transforming money from precious metals to pure, state issued paper took centuries of subterfuge and baby steps punctuated by the occasional crisis, a process described succinctly by Murray N Rothbard in What Has Government Done to Our Money? In other words, such a change was an insidious revolution within the form which had to camouflage its true nature as much as possible. Hyperinflation, which provides the swiftest impetus to abandon a particular medium, is, of course, the end game for state economic debauchery, and so is likely to occur only in an environment of increasingly severe financial controls imposed by a government to manage the crisis. Nevertheless, the fact that people are willing to go as far as taking home their wages in wheelbarrows or peruse price tags with tens of zeroes is a sight to behold. All of this suggests that, even when the situation gets desperate, people are highly averse to adopting alternative monetary media.

A report from the Bank of International Settlements (issued in conjunction with the world’s most prominent central banks) states that “a CBDC should exchange at par with cash and private money.” Thus, it seems as though CBDCs are set to derive their value from existing paper currencies and, initially, to complement them. This would follow in the footsteps of how China introduced the digital renminbi earlier this year. Indeed, it is difficult to imagine how it could be done any other way without the backing of a commodity such as gold, which central banks are obviously keen to avoid. If people are convinced that their £ and e£ are the same thing with equal value then CDBCs don’t have to go to the effort of reorienting people into dealing with something entirely new.

With the first problem effectively resolved, the second problem – getting people to actually use their digital wallets instead of cash, credit cards and traditional bank accounts – is likely to be the more difficult of the two. Theoretically, governments could just ban all methods of payment except CBDCs. The trouble with this is that something like it could have been done already, forcing people to use debit cards and electronic payments in lieu of paper. Instead, however, the “war on cash” has been as gradual and insidious as all previous government usurpations of monetary freedom. If the state has been unable to wield a heavy hand in the past, it is unlikely to be able to do so now, especially in an era in which public trust is already on the wane with growing suspicion as to the true motivations for adopted policies.

Another option is to make CBDCs so spectacularly superior that they outrank all other methods of payment, thus incentivising an entirely “voluntary” switch over to their use. Given that governments and efficiency rarely go together in the same sentence, this is probably laughable, and there are likely to be significant hiccups in implementing and operating the transaction infrastructure. In fact, it’s worth mentioning that the only reason why the services offered by conventional banking are so archaic is because of state cartelisation. In the age of instant communication, it is highly unlikely that a genuinely free, competitive banking industry would be unable to facilitate secure, real time settlement of any number of transactions in return for a very low cost. Instead, the operation of most of the UK’s salary, Direct Debit and card transactions is still based on models devised in the 1960s, taking up to three working days to clear.2 Faster settlement, for anything than other than low value, irregular payments, usually comes at a hefty premium.

Obviously one, straightforward thing that governments could do is to decree that all state benefits will be paid only in CBDC. Such a measure, however, would serve as an enticement only for citizens eligible for state welfare, a significant proportion of whom – e.g. state pensioners – are unlikely to be in the most tech savvy of demographics. Moreover, if, in Britain, the measure was to be introduced by the Conservative Party, the left would probably kick up too much of a political fuss about the poor and unemployed being used as Tory guinea pigs.

Another possibility is to demand the payment of all taxes in CBDC; however, most employed people in Britain pay their taxes indirectly, either through the PAYE system (which requires the employer to withhold the tax portion of their employees’ wages before paying it to the government) or through VAT and sales taxes when they make purchases. Only the self-employed and those with several sources of taxable income would be in the position of having to make a tax declaration and subsequent payment to the government. So unless governments could find some way of also requiring employees to make wage payments in CBDC this option would have a limited effect.

A more widespread enticement could be introducing universal basic income (UBI), or some other promise of regular “rewards” for using a CBDC wallet, such as a higher interest rate on balances. The latter is more likely as UBI itself would be a revolutionary step forward, probably arousing too much controversy to be introduced quickly. But even if either method was successful in encouraging the widespread opening of CBCD wallets, there is no guarantee that people will use those wallets as a preferred method of payment. People earning a salary, for instance, may be content to let their UBI or interest payments pile up – i.e. treating their CBDC wallets like a savings account – while using cash and their existing bank accounts for their day to day purchases.

It seems likely, therefore, that a mass exodus to CBDC couldn’t be accomplished without some sort of monetary crisis. The problem here, however, is that such a crisis would have to cripple the regular £ while leaving the e£ intact so as to encourage a flight from the former to the latter. This would be impossible unless the latter was, by the time the crisis hit, trading as an independent monetary medium, retaining its value while traditional fiat collapses. But even if such independence was to be achieved ahead of any crisis, the collapse will undoubtedly entail a large loss of fiat wealth for a great number of people. As such, the primary concern in selecting a new monetary medium will be safety, stability and storage of value, while the ease of making transactions – supposedly the biggest selling point of CBDC – is likely to be a secondary priority. For instance, the Weimar Republic only brought its hyperinflation (1921-23) to an end by replacing the worthless papiermark with a new rentenmark backed by property bonds linked to gold; Zimbabwe’s hyperinflation (2007-2009) ended in a flight to foreign currencies. Memories of monetary crises also tend to be long – to this day Germany maintains a reputation as an inflation hawk, a factor which has often brought it into conflict with more dovish member states of the European Union. Thus, it is very unlikely that people will flee rapidly inflating paper currency into an intangible, electronic alternative that is not only unable to avoid inflation but is expressly designed to facilitate it. Such a move is even less likely in an era in which people are coming to see the government’s digital tools as the primary threat to their freedom and security. Unless we had already moved to an environment in which government has achieved an additional layer of societal control sufficient to preclude a flight to gold, silver, foreign currency or private cryptocurrency, the state has very little chance of ensuring that CBDC will emerge as the phoenix from the fiat ashes.


As a result of all of this, it is difficult to disagree with the conclusion of Alasdair MacLeod, Head of Research at Goldmoney – that proposals for CBDC amount to little more than “rearranging the deck chairs on the fiat Titanic”. Such an observation is sharpened by the fact that time is unlikely to be an affordable luxury for central banks. All of the research, development, testing, approval and introduction of CBDCs, not to mention their reliable, robust operation, will have to be accomplished well before the demise of paper currency so as to lend people the confidence in using them. As we are now in the final fiat furlong this may be a tall order. The last major change of similar comparison in the UK – decimalisation – took a whole decade to implement following the formation of an investigatory committee in 1961 (although there was less of a reason to rush back then). If CBDCs take a similar eternity to introduce then they will almost certainly be swept away along with the rest of the present monetary system. 

None of this, of course, is an excuse for complacency – CBDCs should still be outed as the threat to freedom that they are. However, as horrific as they could undoubtedly be if they were to be instilled successfully as the primary method of payment, a well publicised effort by government at introducing CBDCs could actually end up as a boon for liberty. Why? Because, as I have said before, the public’s ignorance of money has been one of the cornerstones of state growth during the twentieth century. The cryptocurrency phenomenon has already aroused some interest in the questions of what money actually is and where it comes from. Foisting upon their hapless populations some new fangled electronic token in an era when the ability of the state to control narratives is being to crumble may awaken a wider degree of much needed thought on these matters.

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1Presumably, any customised spending restriction would apply only to the current holder of any particular e£, i.e. the restriction on that particular e£ would vanish as soon as it is transferred to a recipient who would then be able to spend it as he pleased. Thus, there would be no market penalty for exchanging e£s into £s, and they could exchange at par, subject to a small fee. Indeed, merchants who are able to receive restricted e£s as payment – e.g. “essential” grocery stores – could run a profitable sideline exchanging e£ for £.

2If you have ever wondered why your most recent spending with your debit or credit card doesn’t appear on your statement, this is because transactions are authorised in real time while you are at the checkout but the funds do not typically change hands for another two or three working days.


  1. I hate to say this, but I think you are under-estimating the sheer malignity of the forces that now seek to control us. Governments everywhere have now established the principle, via vaccine ‘mandates’ and ‘passports’, ‘climate emergencies’ and goodness knows what else, that they can force us to do anything they wish. They will have no hesitiation in forcing the CBDC’s on us, whatever the ensuing chaos. They care not a fig for our feelings, nor for how much disruption they cause to the lives of their serfs.
    You say “Once the regular £ is abolished, however, if e£s of varying restriction are circulating together, restricted e£s will be less desirable and, hence, less valuable than unrestricted e£s.”. I respectfully think you are mis-identifying what a CBDC actually is: –
    If I, being an old-fashioned kind of chap, were to write you a cheque, put it in an evelope, stick a stamp on it and pop it in the mail, what would be the end result? It would merely consist of a re-arrangement of the pixels on your online bank statement and on mine. There are no ‘tokens’ or anything to physically re-locate. I think that these new CBDC’s will simply consist of a digital ledger with the central banks. The CBDC will be a digital code expressed in pixels. There will be nothing physical, nor a representation of anything physical. As you spend this new ‘money’, and as you gratefully receive your UBI from the government, all that will happen is that the pixels on this ledger will be re-arranged to adjust the balance. Which is pretty much where we are already. The biggest difference is that ultimate control of these pixels will rest with the government, not the ‘account holder’.
    And then there’s Bitcoin. I can see humanity approaching a ‘Hard Fork’, to ‘coin’ the jargon. In fact, it has already happened. One branch thinks we must all wear masks, get vaccinated, and do everything the government tells us to do. These people will happily adopt the CBDC, because they trust the government to act in their best interests.
    The rest of us will shun CBDC’s and use Bitcoin. And that is a problem, for the government at any rate. I have never heard of a civilisation in which the currency was not issued by the government. Coins have always worn the likeness of the king or emperor. Now we have a ‘private’ currency, completely and utterly outside government control. And they are not going to like it. The big question is how the government will respond to this existential threat?
    The whole question of ‘What is money’ is very profound. I heard somebody this morning describe it as “a contract with the future”.
    If that is what money is, what is Bitcoin? This same person (whose name I cannot immediately recall I’m afraid) described Bitcoin as “the greatest invention since the symbol for zero”. I have long regarded it as the most significant invention since the printing press, and ranking as one of mankind’s three greatest inventions (the third being the wheel, of course).

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