Government actions to promote central bank digital currencies (CBDC) will remain suspicious until they make a clear case for their usefulness, said Bittrex Global Exchange CEO and finance lawyer Oliver Linch in a recent interview.
Linch said: “CBDCs aren’t for crypto people. When I speak to my clients about this, they’re just not interested in something that has ripped the core out of what crypto is about.”
Linch spoke to Kitko News to discuss the results of an obscure survey from the Bank for International Settlements, which shows that 93% of central banks are working on a CBDC, while also ramping up surveillance on crypto markets.
He said that even though CBDCs could theoretically ameliorate problems in cross-border money transfers, the vague and broad-brush approach taken by governments indicate a lack of direction and raise questions about their true motives. This raises questions as it could upset the applecart, in particular as it relates to the role of private banks.
I think before you can say if it’s going to crowd out altcoins, is it going to crowd out Bitcoin, is it going to crowd out stablecoins, you just have to ask yourself well, what is it? What is this product, what is it for? At the moment, there’s just this sense that governments are jumping on a bandwagon. It’s a bit like the Batmobile, you put the word ‘bat’ in front of anything, it sounds a bit cooler, and it’s not true. Just putting the word digital isn’t enough. There has to be a purpose for it, and at the moment it does just seem like CBDCs in general are a solution in search of a problem.
When it comes to advantages, Linch does not see how CBDCs would be effective for enforcing AML and KYC regulations over the current system, which studies show is already redundant in its mission to stop real crime.
I don’t see that CBDCs are any better on that front,” he said. “If you try and trade on Bittrex Global you will be KYC to the same standards as any kind of bank or financial institution. We know exactly who our customers are, we know what they’re trading and how they’re trading, where that money is going. That’s true if they’re trading in Bitcoin, if they’re trading in any number of altcoins. I don’t think that’s any more true just because you’re trading in special government tokens.
On the other hand, Linch said that concerns about the possibility for CBDCs to destabilise banking in countries where money is created as debt by private banks are valid.
“I think there’s going to be a lot of very awkward conversations between central banks and private banks in those jurisdictions, and in the UK and in Europe and in the U.S. for that matter,” he said.
Governments and central banks at the moment are avoiding having to have those discussions by coming out and saying ‘oh, nothing’s off the table, we can configure these things however we want.’ That actually just sounds like you don’t have a plan, right? Figure out what it is you’re trying to achieve, figure out the best way to achieve it, and then go do that.
Linch expects that countries exploring wholesale CBDCs for institutions will inevitably create a retail version for citizens, the the public will lose the advantages offered by the crypto space in the process.
One of the major problems that traditional finance has, is that it’s excluded from the benefits of cryptocurrencies. Many people that are underserviced by traditional finance, where governments and regulators say ‘sorry, you’re not welcome in these products, because you’re too stupid, or too poor, or both. Because you’re not a high-net-worth individual, you’re not a sophisticated investor, so you can’t have access to this product. And if that means that you can’t get a mortgage or grow a business, then, sucks to be you.
Linch alluded to the reality that many feel they’ve been let down by traditional finance, and that cryptocurrencies, or cryptofinance, is filling the gap. With CBDCs, that possibility to take ownership of your money and do as you please under threat.
That’s a phenomenal advantage that crypto can bring to people. If CBDCs don’t even help in that regard, where are they going to get their users from? Where are they going to get people interested in this, excited about this, unless they’re going to start forcing people into using CBDCs?
In the absence of neither clear policy objectives nor justifications for CBDCs or the means to achieve adoption, Linch said it’s completely normal and understandable for people to presume the worst of CBDC proponents.
Wherever you fall on the spectrum of conspiracy theory… is it governments and central banks just wanting to be cool and say digital all the time? Is it that, plus they want to give a little bit more control back to the central bank, and indeed to private banks, to have a little bit more familiarity? Is it that they want a load of data on every single transaction, and they can see the incredibly poor life choices that I made when I go shopping on the weekends? Or is it that they want to be able to do really nefarious things like turn off money, and stop you going to shops, and direct your spending?
At the end of the day, it does not matter to which idea you ascribe to, said Linch. The onus is on the government to make a case for introducing central bank digital currencies. As it stands, following the abysmal track record of governments in handling recent crises, questions of legitimacy are rampant. Faith in government actors and policy-makers has plummeted across the board, and questions of underlying intentions are largely ignored or left unanswered.
If you’re pushing for CBDCs, you’ve got to explain what your positive motivating factors are,” he said. “At the moment, that’s just not there.
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