• Bahamas are the leading countries in the world on Central Bank-issued cryptocurrencies with their Sand Dollar
• CBDCs offer many benefits in terms of efficiency of payments, speed, and reduction of friction
• However, there are real privacy concerns and questions about government power

Centralised Issuance

The topic of Central Bank Digital Currencies, or CBDCs (Central Bank Digital Currencies), is just beginning to make its way into mainstream consciousness.

While many crypto enthusiasts wish more countries would follow El Salvador’s lead by adopting Bitcoin as legal tender. Stablecoins seem to be a more realistic case for sovereign adoption since they are not subject to the volatility that plagues Bitcoin. They are digital versions of fiat currencies, so the exchange rate is fixed at one and their value doesn’t fluctuate.

There are some small-time cases, like the city of Lugano, Switzerland, that allow for decentralised stablecoins, such as Tether (USDT), to be used as legal tender. However, many governments also have their own centralised stablecoins.

Countries

According to PwC, none are more advanced than the Bahamas, where the Central Bank issued a digital version of the Bahamian dollar in October 2020. It is commonly known as the Sand Dollar and has the same utility, legal status, authorisation, and authorization as its conventional fiat counterpart.

There are many benefits. The blockchain offers many benefits, including efficiency, security, speed, and speed in payments. There is also a reduction in friction due to its use. The Bahamas hopes to capitalize on the publicity and make it the Caribbean’s crypto hub.

The trackable nature and security of the blockchain will help to prevent money laundering, counterfeiting, fraud, and other financial crimes. The announcement also referred to the potential benefits of the loan market, with the CBDC being able “to provide an excellent record income and spending, which could be used as supporting information for micro-loan requests”.

Disadvantages

However, not all CBDCs have positive consequences. The government can theoretically track what you spend, when and with whom. This poses serious privacy issues. Accounts can be frozen at any time – Tether has frozen USDT in the past.

This raises questions about a possible dystopian scenario in which governments could implement increasingly sci-fi ideas, such as social credit scores being automatically leveraged from payment activity. Let’s suppose the government found out that you gambled $10 on football last night. This was automatically reflected by your credit score or, worse, your social score. It is easy to lose sight of the potential power this would give to more authoritarian governments.

Is it a good thing to have absolute sovereign control of citizens’ finances? They have already established control over the monetary environment, including printing, inflation, and interest rates. This is why many people are turning to Bitcoin. Because of how central money is in today’s world, CBDCs could easily implement sanctions and have complete visibility over your net worth, tax liabilities and spending habits.

Conclusion

These notions are fortunately not confined to Black Mirror plotlines. CBDCs bring these possibilities closer and allow for unfathomable power for sovereign states. Absolute centralization within cryptocurrency is dangerous due to the trackability of the blockchain and digital wallet infrastructure.

Bahamas are currently leading the charge. All systems point to this as a step towards efficiency and an innovative tool for building a larger crypto ecosystem in the Caribbean.

But, considering other countries, such as China, are working to create their CBDCs, there’s cause for concern about the power these CBDCs might have if used in certain ways. This is especially true for authoritarian governments.