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Arguments for and against CeFi [Part One]

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Russell Brand had a big rant against Central Bank Digital Currencies (CBDCs) the other day, claiming that digital, programmable money combined with a digital identity is a fantastic way for governments to place you in a digital straitjacket.

It’s a very convincing discussion with over a million views in just a few days. Russell’s humorous rant articulates the case against CBDCs and government in general very well, and argues that we should all be free to do what we want to do.

It’s the old state versus libertarian discussion again.

What he doesn’t articulate is the nuances of digital identity and CBDCs. For example, the Aadhaar digital identity programme in India has allowed millions of Indians to be able to access banking. In 2017, about 80% of Indians above 15 years of age had a bank account at a bank or another financial institution, compared with just 35% in 2011. This growth was primarily due to the financial inclusion of marginalised groups within the country from women, to those not working, the less educated and the poor.

That change is in large part due to the government’s role out of a digital tech stack for India. Add innovators like PayTM and Google Pay to the mix, and you have a society transformed in under a decade.

Now yes, there are detractors of schemes such as this, and its Chinese sibling Alipay, but such innovations are undeniably making the world more accessible to the marginalised groups. Before, all they could do was beg or pay with coins and notes. Now, they can pay digitally, they can also trade, invest and save digitally. It’s much easier.

Now, I’m not an advocate of CBDCs. I can see the advantages. But, as Dave Birch states so nicely digital cash is not physical cash. His argument is that CBDCs will not be anonymous, but will allow privacy, e.g. the government cannot find out what you trade in.

I see it slightly differently as it depends on whether it’s CBDCs issued direct to citizens, circumnavigating the bank (retail CBDCs), or whether it’s CBDCs issued through the commercial banks to citizens and industry (wholesale CBDCs). The latter are the most likely to be the model in most countries, because that allows a CBDC to be almost a form of digital cash. Banks know when you withdraw and deposit physical cash; they will know the same with digital cash.

However, what all banks don’t know is what you spend your physical cash on. That’s why physical cash will always have a preferred role amongst those that want both privacy and anonymity.

In a similar vein, you have to raise the question of whether we need CBDCs when we have crypto? In this case, as referenced before …

… I think you end up with a hybrid system …

It’s swings and roundabouts, and citizens will choose which they prefer. For general day-to-day, they will stick with cash until there’s a decent alternative. For sharing digitally across accounts, they’ll probably use CBDCs. For true digital anonymity, they would use crypto if they could understand it.

Right now, hardly anyone uses cryptocurrency digitally because they don’t know how. Only the true techie nerds and geeks can trade in such things. The man and woman on the Clapham Omnibus? Not a clue.

This was made clear in this quote from the CEO of MasterCard:

"We partnered with Coinbase to make it as simple [to use crypto] as you buying coffee. I think these things need to click in, and then you have the building blocks for it to become mainstream."

Michael Miebach, MasterCard CEO

There’s the rub. When I can buy an NFT without having to open accounts with Metamask and Opensea and remember two more passwords, along with trying to work out how to send BTC to the account using another account with a password, then crypto might become digital cash. Until then, I’ll stick with fiat currencies.

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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