Expiry dates and restrictions on “less desirable” purchases are among the key advantages of central bank digital currencies (CBDCs), according to Cornell University professor Eswar Prasad at the World Economic Forum (WEF) event held in Tianjin, China. The event, also known as Summer Davos, brought together experts to discuss the future of global economics and the role of technology in shaping it.
Prasad emphasized the potential for physical currency to disappear in the near future, with CBDCs taking its place. He expressed the belief that CBDCs and the technology behind them could lead to either a better world or a darker path for the international economic landscape.
One significant benefit of CBDCs, according to Prasad, is the ability to program them and attach expiry dates to the units of currency. This programmability allows governments to regulate the use of central bank money and exert control over purchases. For instance, governments could decide that CBDCs can be used to buy certain goods or services while restricting their use for other items deemed less desirable, such as ammunition, drugs, or pornography.
Prasad acknowledged the power of this programmability but also expressed concerns about the potential dangers it poses to central banks and the integrity of central bank money. He stressed that while digital money offers exciting possibilities, it also has the potential to lead to a dark place if not used responsibly.
The concept of integrating expiry dates into CBDCs has already been explored by central banks worldwide. The Bank of Canada (BoC) published a paper discussing the pros and cons of expiration dates. The paper suggested that expiry dates could automate personal loss recovery, ensuring that consumers receive funds back into their online accounts if their digital cash expires.
China has also been considering expiration dates for the digital yuan, stating that it would no longer be usable if not spent within a specific timeframe. The World Bank has even referred to expiring money as a potential monetary policy tool, as it could stimulate consumption during recessions or pandemics.
Advocates of CBDCs argue that digital money offers flexibility and the ability to micro-target specific sectors, regions, interest rates, and socio-economic demographics with real-time feedback.
However, despite ongoing research into CBDCs by more than 100 countries, there is growing skepticism about government-controlled digital money. A poll conducted by the Cato Institute found that only 16 percent of Americans support the adoption of a CBDC, with concerns about government monitoring of consumer purchases being a significant factor in opposition.
Even some Federal Reserve officials have expressed doubts about the necessity of CBDCs. Fed Governor Michelle Bowman highlighted the significant risks of CBDCs compared to their benefits, with concerns about their potential impact on Americans’ freedom and privacy.
In response to these concerns, House Republicans introduced the CBDC Anti-Surveillance State Act, aiming to ban unelected bureaucrats from issuing a CBDC that could potentially create an authoritarian-style, surveillance-style digital dollar.
Furthermore, the uptake of CBDCs in places where they have been introduced has been minimal. For example, the eNaira, released by the Nigerian government, has seen minimal adoption, despite efforts to incentivize its use. The IMF has expressed disappointment at the lack of public adoption of CBDCs.
Nonetheless, countries like China, Japan, and Russia are moving forward with pilot projects for their respective CBDCs, aiming to gauge public demand and preferences.
The European Central Bank (ECB) is also considering the introduction of a digital euro. ECB chief Christine Lagarde announced that the governors in the governing council would decide on the launch of a digital euro at the end of October, further highlighting the growing interest and exploration of CBDCs globally.