In its annual report, the Bank for International Settlements (BIS) published a blueprint for the future monetary system which it is striving for together with the central banks it serves and coordinates. It is intended to exploit the possibilities offered by digital technologies and the planned central bank digital currencies (CBDC).
The briefest description of the purpose of this new system that the BIS offers reads:
“A new type of financial market infrastructure – a unified ledger – could capture the full benefits of tokenisation by combining central bank money, tokenised deposits and tokenised assets on a programmable platform.”
The key concepts are tokenization, unified ledger and programmability.
Tokenization
Tokenization means that assets such as financial claims, e.g. securities, credit claims or bank balances, or real things, such as commodities or real estate, are represented on a programmable platform in the form of tokens and made transferable. What is special about this is that the token simultaneously contains the description of the object in question and the rules for transferring this object. These rules can be complex.
The BIS mentions tokenized deposits and tokenized central bank digital money, which would be part of this system. This would mean that rules can be deposited for both our bank balances and our digital central bank money balances. In innocuous form, these might include, for example, automatically converting a digital euro balance that exceeds a limit set by the ECB (3,000 euros has been mentioned as a possible limit) into a normal bank balance, and conversely automatically replenishing the eEuro balance. But, as we will see, there are also much more problematic applications.
Unified Ledger
Another key component of the envisaged monetary system is the unified ledger. In a unified ledger, all parties, means of payment, claims and goods relevant for a specific application are registered and all transactions are recorded. This can involve a very large number of components.
The programmability of the platform and the bundling of all relevant participants and real or financial goods in one ledger creates the possibility, according to the BIS, to fully automate and seamlessly integrate the exchange of goods and services and the associated payment. Transfers and payments can be made smultaneous.
A built-in centralization tendency
The use cases for such unfied ledgers that the BIS cites, such as securities settlement or trade finance in supply chains, seem innocuous and useful. Each unified ledger would bring together all the intermediaries and assets required for its specific application. So instead of each party keeping a record of the transactions that affect it, and triggering a payment at the appropriate time, all transactions would be registered in one ledger and executed automatically and simultaneously as needed, under cnetralized automatic control.
The BIS mentions that, If the scope of a unified ledger expands over time, it could include additional assets and parties or merge with other unified ledgers. It seems clear that over time, more and more merging and expanding of the various unified ledgers would take place. After all, the arguments for greater efficiency of including all players and trading objects apply anew at each level of concentration already reached.
The foreseeable end result would be a detailed central control of all economic and financial transactions within a world region that has agreed on such a monetary system. This would be accompanied by an enormous concentration of power. The word power, however, does not appear in the BIS blueprint.
It does become clear, though, how fine-grained the possibilities for control would be:
“Whereas in traditional systems the rules that govern the updating of asset ownership are usually common to all assets, tokens can be customised to meet specific user or regulatory requirements that apply to individual assets”
What sounds so harmless and efficient, however, means that specific frameworks of possible actions can be defined for each person and each company seperately and stored on the platform so that the behavior of this person can be manipulated and monitored in an automated manner. If you imagine a world of automated micropayments, as envisioned by payment strategists, where every mile driven, every coffee dispensed by your rented coffee maker and every page of a book you read, is charged individually, you can see easily, how control of payment processes and payment options means control of virtually all behavior.
In very abstract terms, the BIS hints at this when it writes:
“In the case of payments, for example, supervisory compliance requirements that depend, among other things, on the transacting parties, their location and the type of transfer could be directly embedded into the token”
Under the heading of combating money laundering and other illegal activities, the BIS touts that the use of a unified ledger would provide transparent and verifiable records of all transactions, transfers and changes in ownership. In other words, total surveillance is becoming the norm.
Massive concentration of sensitive data
The BIS pays lip service to the importance of privacy protection for “users” of the unified ledger. It acknowledges that the concentration of transaction data combined with information about the parties and locations of the transactions, as well as products and services purchased, is problematic. But it deals almost exclusively with data security, not with privacy, the possibility of misuse of the data by government or powerful corporations who are involved and have access to the data. Misuse to guide behavior, control, and enforce censorship is absent from the discussion, even though this is what makes many people so sceptical with regard to CBDCs. There is also no serious discussion of the limits to the possibilities of protecting the data.
In the page-long summary of the article, data protection and privacy are not even mentioned.
Without elaborating, the BIS talks about the single ledger being run by a public-private partnership. How can they say this so nonchalantly without specifying in detail which private parties are supposed to be involved in such a sensitive central position of a payment system, and what they would be able and allowed to do?
Nigeria, Brazil and Israel show the way
CBDCs that are already circulating or whose program code is already known, confirm the fears about the totalitarian control possibilities that CBDCs would enable. That is, above all, the possibility of blocking payments from certain people or companies, or making what they can buy or sell dependent on conditions.
The Central Bank of Nigeria recently announced that it wants to give its already circulating eNaira additional programmability. Users (meaning the government) are to be given the ability to restrict the usability of transferred eNaira. An example given are loans or subsidies to farmers for the purchase of seeds or machinery. The transfered money units could have the condition attached that only such products can be paid for with them. According to the central bank, it can also be programmed in that the money can only be spent in certain places or regions.
In Brazil, after the source code of the planned Real Digi was published, the Portal do Bitcoin found that it contains features that allow any entity authorized by the central bank to freeze, confiscate, or move funds belonging to any “owner.” I put “owner” in quotation marks because in this system, you have limited control over your assets if htey are managed in these ledgers.
According to a report by the news portal tkp.at, the Brazilian central bank has confirmed the functions and reassuringly announced that not all functions of the test version would be included in the final version. But why test such functions if you don’t want to use them? Even if they should not be included in the code at the first release of the CBDC, for fear of protests, they could be added later at any time.
The Israeli journalist Efrat Fenigson has described in an article, which she has excerpted in English on Twitter, which instruments of control are embedded in the code of the planned digital shekel. They include the possibility of restrictions that only legal products can be purchased or that the money can only be used at certain times or in certain places.
Digital central bank money as a foundation of this system
One might argue that tokenization, programmability and unified ledger, and thus the envisaged new monetary system, could also be realized without CBDCs, either with normal bank money or with cryptocurrencies.
The BIS emphasizes insted that a CBDC, such as a digital euro or dollar, have a fundamental function in making comprehensive tokenization possible. They argue that only if payments are made via central bank money, market participants could be confident that they would receive something of value for what they were giving up. In the case of so-called stable coins from the crypto sector, there have been scandals, bankruptcies and price fluctuations, which have undermined this trust. Normal cryptocurrencies like Bitcoin are hardly suitable from the outset because of enormous price fluctuations.
In the case of bank money, payment via the platform would also not be final, because bank deposits only represent a claim to central bank money. Therefore, when bank money is transferred, a transfer of central bank money is made in the background between the participating banks in the opposite direction to balance the bank balances. Thus, for the entire payment process to be automated, at least tokenized central bank money is required for transfers between banks.
Whether this really requires digital central bank money usable by the general public, as the BIS explicitly claims, is questionable. The BIS does think so. It calls it a “core element of a tokenized environment.”
Window dressing from the EU Commission
The EU Commission writes reassuringly in the explanatory notes (No. 56) of its proposed regulation for the digital euro:
“The digital euro should support the programming of conditional digital euro payment transactions by payment service providers. The digital euro should, however, not be “programmable money”, which means units that, due to intrinsically defined spending conditions, can only be used for buying specific types of goods or services, or are subject to time limits after which they are no longer usable”
And in Article 24 para 2 of the draft law it clearly states:
“The digital euro shall not be programmable money.”
This contradicts what the BIS has listed as desirable elements of the jointly envisaged new monetary system and what other central banks (want to) practice with their digital money. However, the promised non-programmability of the digital Euro does not matter for most applications and is therefore likely to be window dressing.
After all, the programmable monetary system based on CBDCs can perform these control functions, even if certain aspects of it are excluded (for now?) for the CBDC itself. A euro country that wants to ensure, as Australia’s government already does, that welfare recipients buy only what the government approves of with their support, need only disburse appropriately programmed tokenized bank desposits, rather than units of CBDC.
Programming at the personal level, i.e., that a certain person cannot buy certain goods, whether with bank deposits or with central bank money, is not precluded by the Commission’s assurance anyway. The Commission’s proposed directive defines programmable money as:
“programmable money’ means units of digital money with an intrinsic logic that limits each unit’s full fungibility”
Thus, only programming at the level of individual monetary units is excluded by the draft law. To use the image of banknotes: It excludes printing on some banknotes that they lose one per mille of their value per month from issuance, or that you cannot pay for weapons with some banknotes, no matter who owns them (but you can with other banknotes). It does not exclude the option to place a stamp on the person concerned (in the ledger), saying that this person cannot buy weapons or alcohol by any means of payment.
It always starts with the most vulnerable groups. Most citizens can be persuaded that welfare recipients should not (be allowed to) spend their support on gambling and cigarettes, or that ex-convicts should not be allowed to buy alcohol and drugs or weapons.
Then could come restrictions on people with high blood pressure or obesity that prevent them from harming themselves and the insured community through unhealthy diets. Climate protection also offers many starting points for enforeced behavioral changes, without which humanity would be threatened with imminent extinction, as might be argued.
We have been sufficiently informed in recent years about the great danger of so-called fake news and the people who spread it. Instead of account blocking by private banks, which these dangerous people and groups of people keep bypassing, it would finally be possible in the new system to stop any money transfers to accounts held by them.
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