What are the Positive and negatives of Central Bank Digital Currencies?

The federal reserve is changing its currency protocol in 2023 and offering digital currency to businesses and people. The way I see it is, it is pretty much the same as using your debit card like we are at the moment, only they will be offering at a lower rate where the retailer can see more of their profits. Until they decide to increase the rate. This would be a big concern for me. It looks good now, but what will the rates look like when they have concerned the market?

For example:

When you go to a restaurant and spend 100$ on food, you swipe your card, and right now, the debit machines are costing the merchant 4$ in fees to use this service. So they only receive 96$ of the bill, and 4$ goes towards fees. The Fednow service only takes 1% of a fee giving the merchant more of his money back towards the goods purchased, allowing for more spending and growth. So they are pretty much cutting out these middleman services and taking a low 1% profit for themself, but until when. Below you can read the benefits and disadvantages.

Benefits & Incentives

  1. A new monetary policy tool for the Fed
  2. Greater financial inclusion (see Banking for All Act)
  3. No account maintenance fees
  4. Faster receipt of direct economic stimulus payments
  5. Minimal to zero fees for money transfers and payments, possibly even across borders/Int’l
  6. Real-time (or near-real-time) money transfers and payments
  7. Possibility of being paid interest on our deposit balances in CBDC
  8. Access primarily digitally via phone app or website
  9. Potentially additional locations where Fed Accounts can be accessed, such as US Post Offices
  10. Streamlining of potential future UBI payments


Programmability differentiates CBDC from current currencies. This capability is essentially unique to digital-only currencies. In addition, CBDC gives unprecedented control over the money itself, and where we may end up in the future might be scary or not.

From the Fed’s vantage point

The Fed’s stance on the US economy and the potential CBDC presents on whether economic fundamentals are susceptible to change. Overall, they have minimal options; they can create more money or adjust the interest rate. Low-interest rates encourage borrowing and may occasionally fuel economic development, while high rates discourage firms and individuals from borrowing and “cool down” the economy. Quantitative easing or bank stimulus supplies banks with liquidity by raising the amount they are permitted to lend.

Recent trends include delivering checks directly to residents, consistent with modern monetary theory (MMT). However, because these checks originate from the government and not the Fed, this essentially amounts to printing additional money.

A programmable CBDC promises that interest rates can be adjusted as frequently as necessary with near-immediate effects, as it would affect the CBDC in your digital wallet — the Fed would no longer need to wait the approximately 18 months that it takes for such policy changes to permeate the economy.

Aside from the effect of their present weapons, one area of monetary policy that seems to have escaped the Fed is attempting to have a more significant influence over the velocity of money – the rate at which money is spent.

All of the following ideas were not concocted by me in an attempt to scare people; they have all been explored either explicitly in numerous white papers and research documents on CBDC or inferentially by recognized economists and analysts. Also included below are additional supporting passages (emphasis added).

Potential Downsides to CBDC

  1. Heavily monitored/tracked transactions
  2. Loss of anonymity of cash
  3. Restrictions/limits on savings
  4. Restrictions/limits on what it can and cannot be spent on
  5. Negative interest rates
  6. Real-time monetary policy effects of inflation
  7. Automatic tax collection
  8. Automatic collection of govt fines, tickets, child support, student loans, etc
  9. Commercial bank disintermediation (i.e., banks could go away)
  10. Expiration dates on the currency (i.e., must be spent within a period of time)
  11. Eventual elimination of physical cash
  12. The ability to be shut off from the system without the recourse of cash

Economic Development and Inflation

The influence of items 3–6 and item 10 on monetary velocity boils down to the following:

They require you to spend rather than conserve money.

  • Neither saving money nor paying off debts causes economic development.
  • In 2008, for instance, the stimulus provided by President Bush had limited impact since the following was done with the money:

Results of the 2008 Stimulus:

— 20% spent it,

— 32% saved it, and

— 48% paid off debts.

According to the Fed’s standards, providing a stimulus entirely saved or paid off in debt is ineffective. They want you to spend it, you to spend it on certain items, and you to spend it fast, yet they provide little to no incentive to save.

In my perspective, this is becoming frightening.

Perhaps the justification is that we wouldn’t have received the money if it weren’t for the stimulus (or UBI in the future). Therefore we don’t have a perfect choice over how we spend it. In other words, it involves behavioral economics and control.