All that glitters is not gold… Especially when it’s a government surveillance coin.

An article about some of the details neglected by Rishi Sunak’s bright, breezy ‘Britcoin’ video.

In a short video released by HM Treasury on the 14th October 2021, Rishi Sunak gave a bright and breezy explanation of Central Bank Digital Currencies (CBDCs) to accompany the launch of the G7’s report, Public Policy Principles for Retail Central Bank Digital Currencies.

You would not expect a feature-length explanation of CBDCs on Twitter, yet I was struck by how one-sided this brief presentation of the benefits was. Perhaps more detail and debate will emerge in the fullness of time, but the government has not been transparent in recent times and the devil is in the detail. The most devilish details are the downsides, which did not get a mention.

So, what is a Central Bank Digital Currency?

According to Sunak, it is a “digital version of money, a bit like a digital banknote that could be used alongside physical notes and coins.”

That’s a simple and straightforward explanation, but there is much more to it…

In the most simple terms, a token-based CBDC would be like digital cash, and would be similar to today. It would be fungible, which means it is equivalent to other tokens and fully transactable by the holder of the token.

When you use cash peer to peer, your transaction is private. With CBDCs, the government could know all about how you spend money through real time collection of data, although anonymity and privacy could be programmed in degrees.

An account-based CBDC gives the policy maker (the government) enormous power over your money as your identity is connected to the money.

If Central Bank Digital Currency is not quite like a digital version of the money you already have, it is nevertheless a macroeconomist and technocrat’s dream tool.

For one thing, CBDCs are ‘programmable’. One party in the transaction - such as the state or even an employer - could control how the money is spent by the recipient.

In the March 2020 Discussion Paper Central Bank Digital Currency Opportunities, challenges and design, the Bank of England describes the potential design of programmability:

“For example… enabling transactions to occur according to certain conditions, rules or events. There will be many potential applications of this functionality, including integration with physical devices or Internet‐of‐Things (IoT) applications. Examples might include the automatic routing of tax payments to tax authorities at point of sale, shares automatically paying dividends directly to shareholders, or electricity meters paying suppliers directly based on power usage. CBDC might also enable the use of micropayments (payments for very small amounts — discussed in Chapter 4.3) if it allows small transactions to happen at lower cost than happens today… This could enable new business models, for things like paying for digital media (eg paying a few pence each time to read individual news articles, rather than needing to sign up to a monthly subscription).”

And:

“… the use of ‘smart contracts’ — pieces of code which are able to self‐execute payments based on some pre‐defined criteria. In simple terms, these contracts are statements that say ‘If X happens, then pay Y to Z’. An example would be a forward‐dated payment: ‘If today’s date is X, then transfer £100 from account Y to account Z’… Transactions could also be integrated with physical devices, or the ‘Internet of Things’, for example code could be written to say ‘when £X is transferred to account Y, switch on device Z’.”

Responses to the Discussion Paper elaborated further on the degree of programmability, with suggestions that smart cars automatically pay for fuel directly at the dispensing pump, automated taxation at point of sale and automated charitable donations. Some suggestions might offer welcome simplification for the citizen, such as automated payment on insurance policies, for instance if a flight is delayed beyond a certain amount of time. Others hint at the vast potential for state control such as restrictions on how certain funds can be spent, eg charitable donations, and restricting economic stimulus payments to be used for certain goods/services/sectors. Perhaps in the future people will be accustomed to such controls, since another suggestion is parental control for children’s use of CBCD.

And, deploying a little imagination, how else could functionality operate if identity and CBDC become enmeshed? Here are some examples:

• You can only spend your benefits on essential foods and medicines

• You can only spend a portion of your money in certain geographic regions, perhaps to boost the local economy, or to make sure you don’t travel too far and stomp those carbon footprints all over the country

• Negative interest rates could be flicked on like switches to stimulate the economy to make you spend your money

• Different people could have different interest rates

• Or perhaps your money might have an expiry date to discourage saving and stimulate spending

• Imagine you have spent your carbon allowance in a wartime rationing system (à la Joanna Lumley) which means your CBDC tokens stop allowing you to buy fuel or meat, or whatever else the government deems is a bad buy for climate. (It’s all for the greater good!)

• If you are not fully vaccinated (we might be on the 10th booster by then) your money is no good in close contact businesses like gyms, night clubs and restaurants.

The options are endless.

These examples might seem like a far-fetched conspiracy theory. After all, the G7 report makes just one mention of “programmability”, which is specifically in respect to wholesale tokens. Surely no Western government would impinge upon our liberties in such ways and control our earnings and property? But there are already precedents.

Firstly, we collectively conceded that lockdown was an acceptable imposition. As a nation, we accepted that people should not to go out to work and earn a living (we were not all laptop middle classes or furloughed) and that businesses would close. We de-prioritised the ability of people to earn money to look after their families. Did this concession open the floodgates for future interventions? Will people be more suggestible to restrictions of a different nature?

Secondly, the country that took the lead with lockdown has also taken the lead with CBDCs. China is way ahead, since it started researching CBDCs in 2014 and has been running live trials of DCNY (Digital Chinese Yuan) for years, with the size and scale increasing each time.

The Chinese government has tested expiration dates to encourage users to spend their DCNY quickly, for times when the economy needs stimulus. That’s right, an expiry date for people’s money has already been trialled.

Thirdly, we don’t need to look as far as China to understand the implications here in the West. In 2019, Mastercard and Doconomy launched a credit card with a carbon footprint calculator that can switch off your spending when you reach your carbon max. This functionality is voluntary, but it could be an automatic aspect of a CBDC.

Tom Mutton, a director at the Bank of England, said that the Government would be required to make the final decision on whether a UK CBDC should be programmable. Whether CBDCs are programmable, or launch at all, should not be a decision solely for the government, but for all of us.

And Sir Jon Cunliffe, a deputy Governor at the Bank, said:

“You could think of giving your children pocket money, but programming the money so that it couldn’t be used for sweets. There is a whole range of things that money could do, programmable money, which we cannot do with the current technology.”

As this quote reveals, CBDCs won’t just alter our relationship with money but with government. Governments around the world have shown increasingly authoritarian tendencies during the management of the Covid pandemic. Behavioural science has been leveraged to manipulate, incentivise and coerce us into behaving as model citizens. Do we want to negotiate with Daddy State to be allowed to spend our “pocket money” as we wish? I was under the impression that once I earned it I could spend it as I wish, within legal limits.

The UK has not made a decision yet about ‘Britcoin’, but Sunak acknowledged in his short video that CBDCs raise “important questions about the reshaping of our economy, financial systems and the way in which people interact with money and payments”. He went on to promise that a UK CBDC must be “grounded in long-standing commitments to transparency, the rule of law, and sound economic governance”.

The issues are very complex, and “reshaping” how we interact with money is putting it mildly. It’s easy to see how Central Bank Digital Currencies could usher a new monetary surveillance regime.

Rohan Grey, the research director at the Digital Fiat Currency Institute, summarised some of the dangers when he gave testimony to the U.S. House Committee on Financial Services:

"Preserving the right to hold currency and make peer-to-peer payments directly without third- party involvement or approval is a small-c conservative response to the socially disruptive effects of digitisation and the internet. If we do not take active and committed steps to reverse our decline into information and surveillance capitalism, including ending the so-called ‘War on Cash’ that is slowly transforming every aspect of our transactional lives into a digitised data stream that can be centrally surveilled and censored, we will end up in a world in which token-money, and the freedoms and civil liberties that it affords, are functionally extinct.”

The implications for digital surveillance and control are completely game-changing. You would have no sense of that from Rishi Sunak’s video, or from the reports to date.

A Bank of England and HM Treasury taskforce was set up in April 2021 to explore the potential of a UK CBDC. The stakeholders of the engagement and technology forums are weighted towards banking, credit, retail and technology. These industries will indeed be stakeholders in CBDCs. But so will we all.

A few on these forums should be watching for the interests of the citizen (Citizens Advice Scotland and Ada Lovelace Institute, for example) but it’s up to us all to watch the purse strings. As Benjamin Franklin said, “An investment in knowledge pays the best interest.”

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