What can new digital currencies learn from COVID track & trace?
Gavin Brown (MBA, 2007)
What can COVID-19 app download numbers tell us about potential new digital central bank digital currency (CBDC) adoption?
Total global money is growing at an increasingly faster rate. If we look at ‘broad money’ (M3) then this includes cash, checking accounts, saving accounts and digital forms of money too. In aggregate we are now globally nearing $100 trillion according to The CIA Factbook thanks to the dependence of our central banks on quantitative easing measures as a means to stave off crisis. In fact, the IMF reported back in June that our dependence upon QE is deepening as it continues to swell central bank balance sheets with observable step changes during the two crisis of our generation – The Global Financial Crisis 07-09 and COVID-19 20-??
Watching from a respectful social distance we observe cryptocurrencies now exceeding $380 billion market capitalisation, with Bitcoin and the majority of the stateless alt coins not subject to any such debasing Q.E. interference. Small beer compared to the value of total global money but not going away either…
Enter CBDC’s, or central bank digital currencies. They are the response of nation states to harness the benefits of blockchain enabled monetary platforms but perhaps more so to mitigate the risk of any meaningful potential cryptocurrency adoption migration by citizens. If a nation state was to lose control of its money then governing with fiscal policies alone would perhaps be unworkable – hence, the strong rebuttal to any whiff of a challenge to the monetary monopoly of countries, such as that of the French & German Finance Ministers who in June last year scolded Facebook’s plans to launch its new Libra currency, stating that, “no private entity can claim monetary power, which is inherent to the sovereignty of nations”.
CBDC’s vary by design and complexity but tend to be centralised in nature to enable state control whilst waiving the rights to anonymity. Good news for; shrinking the shadow economy, closing the tax gap and enabling effective money laundering controls but less so for users of cash in our societies. Coronavirus has accelerated our march toward cashlessness. Indeed, cash is the ultimate permissionless system requiring no oversight, authorisation or transparency as to who has what and when is it transferred. Simply by holding physical cash then the issuing central bank ‘promises to pay the bearer’, (banknotes rather than gold now of course), but nonetheless thereby instilling confidence and by extension value.
Despite the technical, legal and sociological challenges of launching a CBDC, how likely are citizens across the world to accept a reduction in these personal liberties currently afforded by hard cash in return for the benefits, or indeed mandated requirement, to adopt a ‘digital version’ of their existing fiat currency? Well, we may be about to find out. The ECB announced a public consultation on the potential of a ‘Digital Euro’ earlier this month and has even recently applied to register the trademark, which perhaps gives you a steer as to the eventual direction of travel post consultation.
Despite such bullish moves by nation states and trading blocks to regain control of the narrative for the future of money it is not inevitable that their citizens will acquiesce. Indeed, the snooping powers that a CBDC will afford incumbent power are not too dissimilar to the varying track and trace app technologies presently being promoted across the world in the fight against COVID-19.
Although it is conceded that there are potentially more personal detrimental effects to a citizen to opt in to track and trace app compared with a CBDC, the parallel between these technologies is still apparent. Commonplace is that both tracking apps and CBDC’s are new technologies which offer ‘the state’ greater transparency and knowledge of the actions, movements and transactions of their citizens. An erosion of your civil liberties should you choose to evaluate it that way.
The track and trace app download numbers by country would appear to corroborate this hypothesis with approximately 25 per cent of national populations voluntarily downloading track and trace apps presently being championed by their respective Governments. Some notable downloads by country and (% population), include; The UK’s ‘NHS COVID-19’ app 16 million (24%), Germany’s ‘Corona-Warn-App’ app 18 million (22%), Japan’s ‘Shingata Koronauirusu Sesshoku Kakunin Apuri’ app 15 million (12%) and Italy’s ‘Immuni’ app just 7 million (11%).
These arguably poor participation rates could be addressed by offering a value incentive to nudge individuals to download the apps according to writers in The Harvard Business Review. In contrast, we have seen China take a much bolder approach pushing mainstream use and empowering the app and its associated Big Data to take charge of many previous freedoms and decisions of the individual. Travel history, national identity numbers, passport details and phone numbers may all be harvested allowing the app to decide whether you are; fine (green), you have been near somebody who is sick (yellow) or that you should stay at home (red).
Similarly, China continues to be increasingly proactive in their development of the digital yuan CBDC known as the ‘Digital Currency Electronic Payment’ (DC/EP) by The PBOC (China’s Central Bank) in partnership with Alipay & WeChat who have world leading technological competences and reach. This strategy is not knee jerk according to The Financial Times but rather is the continuation of research which began back in 2014, before almost any other central bank. Pilots have been running throughout this year in selected Chinese cities, having now processed in excess of 3.3 million transactions to date. Local government have even been offering lottery prizes for citizens who download the digital Rmb app with the effect that some 15 percent of Shenzhen’s population alone took part in such a lottery to win one of 50,000 red packets containing digital yuan.
Overall, our economies and societies appear fragile. Healthcare and financial systems in particular may be facing systemic, if not significant, threats from COVID-19 and decentralised / non-sovereign corporate issued currencies, respectively. The personal liberties we have historically enjoyed in many democracies around the world frustratingly do not fit well with these meta level technological solutions which although painful seem essential. We may have to trade away what we hold most dear, our personal freedoms, in return for coordinated technological responses to help fight the global macro challenges of our time.