Boon or Ban for the Tech Industry?

So, the head of the European Central Bank, Christine Lagarde, recently announced the launch of the EU’s new CBDC – the digital euro.

She said:

“It will be a journey and we will walk the journey with the legislature. All European institutions will be involved to make sure that Europe is equipped with the currency of the future. Cash is here to stay. You will have all options: cash and digital cash.

So what does this mean for you? For Consumers it would be free and easy to use anywhere in the Euro area. All of this is of course subject to the legislative process.

Cash or digital, the choice will be yours.”

This development has sparked discussions about the potential impact of CBDCs on the technology industry.

Proponents believe CBDCs can improve innovation and financial inclusion, while skeptics warn they could limit competition and lead to privacy concerns.

Understanding CBDCs

Central bank digital currencies (CBDCs) are digital versions of traditional fiat currencies issued and controlled by central banks. Unlike physical cash, CBDCs exist only in electronic form.

Several countries, including Nigeria, England, Sweden and Uruguay, have explored introducing digital versions of their currencies.

Nigeria and the eNaira

Nigeria became the first African country to launch a CBDC, the eNaira, in October 2021. The Central Bank of Nigeria (CBN) aimed to improve financial inclusion, combat money laundering and promote digital payments with the eNaira.

However, these moves have led to growing concerns. Nigerians have mixed reactions to the eNaira, the country’s CBDC. Supporters of the eNaira believe it can bring financial services to the unmanned population, many of whom rely on mobile phones. Fintech companies can create eNaira-based wallets and applications to make financial services more accessible.

They also argue that the eNaira can offer faster, cheaper cross-border transactions and reduce the risks associated with handling cash.

Still, critics say, despite government incentives, adoption has been slow. Some Nigerians prefer the familiarity and privacy of cash. The long-term impact on traditional banks is not very clear, potentially discouraging technology investment in the financial sector and finally, as with any digital currency, data privacy surrounding eNaira transactions is a concern.

Nigerians have protested the government’s efforts to limit cash availability, seeing it as a push towards a cashless society. They see the eNaira as part of this effort and prefer the freedom and anonymity of cash.

What are people saying about the EU’s digital euro?

The announcement of the European Union’s new central bank digital currency (CBDC), the digital euro, has led to a range of reactions, showing concern and skepticism about the implications of CBDCs for individual freedoms and privacy.

One common concern voiced by critics is the potential for CBDCs to centralize power in the hands of unelected technocrats, allowing them to exercise control over how, when and where the digital currency can be spent.

This control can extend to the implementation of social credit systems, carbon allowances and vaccine passport systems, raising fears of increased surveillance and erosion of personal autonomy.

There is also skepticism about the assurance that physical cash will remain a viable option alongside CBDCs. Critics argue that proponents of CBDCs may have intentions of gradually phasing out cash altogether, leading to further concerns about loss of financial freedom and privacy.

Critics also highlight historical context, such as the European Union’s drive for ever closer union and control by bureaucrats, as evidence of a broader agenda aimed at centralizing power and control.

This perspective challenges the idea that the EU is solely focused on good intentions, suggesting instead that it can serve interests that prioritize centralized control over individual autonomy.

Concerns about recourse in situations where banks refuse transactions or restrict spending highlight concerns about potential abuse of power in a cashless society. Without the option to withdraw physical cash, individuals may feel vulnerable to arbitrary restrictions on their financial freedom.

In light of these concerns, some voices are calling for resistance to CBDCs and the perceived digital open-air prison they represent. They speak of the urgency to protect individual liberties and privacy in the face of technological advances that have the potential to affect societal structures and power dynamics.

Let’s take a quick look at the potential benefits of CBDCs:

Improved efficiency: CBDCs can simplify cross-border payments, reduce transaction costs and settlement times for technology companies that depend on international transactions.
Innovation Catalyst: A CBDC industry can spur the development of new financial products and services. Tech firms can use CBDCs to create innovative payment solutions, lending platforms and loyalty programs.
Financial Inclusion: CBDCs can provide access to financial services for the unmanned population, promoting financial inclusion. Tech companies can play a role in developing user-friendly CBDC wallets and apps.

However, CBDCs also present potential challenges for the tech industry:

Disintermediation: CBDCs can disintermediate traditional financial institutions, potentially reducing the need for some financial technology (Fintech) companies.
Competition: Central banks may choose to limit private sector involvement in the CBDC industry, hindering innovation and competition.
Data privacy: The data collected through CBDC transactions may raise privacy concerns. Tech companies involved in developing CBDC solutions will need to ensure strong data security measures are in place.

The future of CBDCs and the technology industry

Ultimately, the debate surrounding CBDCs raises deeper questions about the balance between convenience and control, individual freedom and centralized authority.

Policy makers and citizens must engage critically and thoughtfully to ensure that any digital currency initiatives serve the interests of the people, while upholding principles of transparency, accountability and individual autonomy.

The impact of CBDCs will depend on the design and implementation of CBDC systems by central banks. Nevertheless, CBDCs can have an impact on the financial industry, presenting both opportunities and challenges to the technology sector.