Expiry dates and restrictions on “less desirable” purchases are some of the key advantages behind central bank digital currencies (CBDCs), according to an economist at a World Economic Forum (WEF) event.
The WEF hosted the 14th annual Meeting of the New Champions in Tianjin, China, also known as Summer Davos. During one of the 30-minute panel discussions on June 28, Cornell University professor Eswar Prasad explained that the global economy is “at the cusp of physical currency essentially disappearing” and that programmable CBDCs and the technology behind these new forms of money could take the international economic landscape toward a dark path or a better place.
Prasad contended that one of the “huge potential gains” for the digitization of money is the programmability of CBDC units and attaching expiry dates. Governments can also utilize central bank money to socially engineer society.
“You could have ... a potentially better—or some people might say a darker world—where the government decides that units of central bank money can be used to purchase some things, but not other things that it deems less desirable like, say ammunition, or drugs, or pornography, or something of the sort,” he said. “And that is very powerful in terms of the use of a CBDC, and I think also extremely dangerous to central banks.”
The author of “Gaining Currency” and “The Dollar Trap” purported that CBDCs possess unique characteristics and could be employed “as a conduit for economic policies in a very targeted way, or more broadly for social policies.”
CBDC Expiry Dates
Integrating expiry dates with CBDCs has already been discussed by various central banks worldwide.“With this feature enabled, digital cash could not be spent after its expiry date. Consumers whose digital cash expired would automatically receive the funds back into their online account without having to file a claim,” the Canadian central bank wrote. “We show that offering the option of personal loss recovery could substantially increase consumer demand for digital cash. However, the length of time to expiry plays a key role. An expiry date that is too soon is inconvenient, but a date too far in the future slows down the reimbursement of lost digital cash.”
China has been exploring expiration dates for the digital yuan, suggesting that it would no longer be usable if not spent in a specific timeframe.
The World Bank studied the effects of expiring money and argued that this could be a “potential monetary policy tool” to stimulate consumption during recessions or pandemics.
Skepticism
Despite more than 100 countries at least in the research phase of CBDCs, there is growing skepticism surrounding government-controlled digital money.“While some groups (Democrats, black Americans, younger people) are more likely to be supportive of a CBDC than others, majorities still oppose adopting a CBDC,” the libertarian think tank said in its report. “In sum, it is clear the idea does not have the majority support that government officials should seek before adopting a CBDC.”
Even some Federal Reserve officials have expressed doubt about the necessity of CBDCs.
Fed Governor Michelle Bowman espoused the “significant risks” and highlighted the risks compared to the benefits.
Meanwhile, in places that have instituted CBDCs, there has been a minimal appetite for them, as many still prefer cash or mobile payment applications.
Last year, the Nigerian government released the eNaira, and fewer than 0.5 percent of citizens have used the CBDC. Officials tried incentivizing greater adoption rates, such as providing discounts if people used the CBDC to pay for taxicabs. This still did not work.
The trend even caught the attention of the IMF, calling the lack of public adoption “disappointingly low.”
Several major economies, including Japan and Russia, will be rolling out their pilot projects this year. Officials will determine if there is demand for virtual yen or rubles or if consumers prefer the status quo.
