# There Is No Good Version of a Central Bank Digital Currency A fully implemented CBDC gives the government complete control over the money going into and coming out of every person’s account. It’s not difficult to see that this level of government control is incompatible with both economic and political freedom. April 23, 2024 • Commentary By [Norbert J. Michel](https://www.cato.org/people/norbert-michel) This article appeared on [*Forbes​.com*](https://forbes.com) on April 23, 2024. My colleague Nick Anthony and I have [written](https://www.cato.org/blog/announcing-new-cbdc-policy-analysis-webpage) [extensively](https://www.cato.org/sites/cato.org/files/2023-01/briefing-paper-145.pdf) [about](https://www.forbes.com/sites/digital-assets/2024/03/28/cbdc-prohibition-is-gaining-momentum/?sh=69d40fd5702d) central bank digital currencies. We’ve [carefully](https://www.coindesk.com/consensus-magazine/2023/04/17/who-really-benefits-from-cbdcs-its-not-the-public/) [documented](https://www.heritage.org/asia/report/chinas-cryptocurrency-plans-are-about-power-not-innovation) [how](https://www.forbes.com/sites/norbertmichel/2023/03/06/cbdcs-not-just-a-different-form-of-money/?sh=ebc639a21b69) the benefits are few and far between, as well as how severe the risks are. Some people think we’re exaggerating the risks, and a few even believe a CBDC done “right” would be great. They argue that [*their*](https://www.forbes.com/sites/digital-assets/2023/05/02/central-bank-digital-currencies-under-any-name-threaten-privacy-and-freedom/?sh=3a77cd083486)[ version](https://www.forbes.com/sites/digital-assets/2023/05/02/central-bank-digital-currencies-under-any-name-threaten-privacy-and-freedom/?sh=3a77cd083486) of a CBDC would, for example, spur competition and innovation while protecting privacy and freedom. These folks could not be more wrong. They’re completely misreading what a CBDC really is and ignoring how the U.S. government [has expanded](https://www.cato.org/policy-analysis/revising-bank-secrecy-act-protect-privacy-deter-criminals) (at home and abroad) [both](https://www.cato.org/policy-analysis/right-financial-privacy) financial surveillance and federal involvement in money for decades. They seem to be forgetting that, when it comes to surveillance, one of the only things most Democrats and Republicans agree on is that Americans’ constitutional rights [aren’t so important](https://www.forbes.com/sites/norbertmichel/2024/04/17/the-bank-secrecy-act-is-a-bigger-threat-than-fisa/?sh=59e273d0db01) anymore. But if these CBDC advocates won’t listen to us, perhaps they’ll listen to the [government officials](https://www.cato.org/visual-feature/risks-of-cbdcs) currently creating CBDCs? These [officials](https://www.cato.org/visual-feature/risks-of-cbdcs) [regularly](https://www.forbes.com/sites/digital-assets/2023/04/18/cbdcs-are-bigger-than-politics/?sh=4718cd951085) explain exactly what a CBDC is, and they’re never shy about how and why they want so much control over people’s ability to spend. The latest central banker to sing the praises of a CBDC was Andrew Abir, the Deputy Governor of the Bank of Israel. Last week, while promoting the digital shekel (the Israeli CBDC), Abir [pointed out](https://www.boi.org.il/en/communication-and-publications/press-releases/16-4-2024en/) that CBDCs are different than traditional digital versions of money because CBDCs are direct liabilities of a central bank. In case that last point wasn’t clear, Abir pointed out that any financial entities holding the digital shekel [would not](https://www.boi.org.il/en/communication-and-publications/press-releases/16-4-2024en/) “actually hold *the public’s* money—it sits at the Bank of Israel.” \[Emphasis added.\] We’ve been pointing this out for quite some time—the central government owns the CBDC and determines what people can do with it. They can even take it away from you. In fact, using a CBDC to conduct monetary policy requires giving the central bank the ability to take money away from people. A fully implemented CBDC gives the government complete control over the money going into and coming out of every person’s account. It’s not difficult to see that this level of government control is incompatible with both economic and political freedom. In the same speech, Abir said that he sees a CBDC as a way for the central bank to [compete](https://twitter.com/EconWithNick/status/1781301220809798123) with private commercial banks. He’s not the first CBDC supporter to make this claim, and it fell just as flat as ever. What’s the supposed advantage of the CBDC that will increase competition? According to Abir, it’s that CBDCs offer all the functions of a modern bank account, [but with](https://www.boi.org.il/en/communication-and-publications/press-releases/16-4-2024en/) “a lower level of risk even than that of a bank account.” This supposed benefit fails on multiple grounds. First, the only reason a CBDC can be said to have lower risk than a bank account is because the government guarantees the balance. And the government doesn’t need a CBDC to do that. It can guarantee the balance on a prepaid card, or even the balance in a bank account. (It guarantees nearly all [bank deposits](https://www.forbes.com/sites/norbertmichel/2023/03/23/svb-debacle-brings-the-fed-one-step-closer-to-becoming-provider-of-first-resort/?sh=772d17a63173) already.) More importantly, there’s absolutely no way that a private company can compete with a government guarantee. If the central bank launches a CBDC it would not compete on a level playing field with private banks. They would not be engaged in anything remotely close to market competition. As for the surveillance issue, [recent](https://twitter.com/EconWithNick/status/1778784199299809550) [remarks](https://www.dnb.nl/en/actueel/general-news/2024/speech-2024/public-money-keeping-up-with-the-times/) by Klaas Knot, President of the Dutch central bank, are just as revealing as those of [other central bankers](https://www.cato.org/visual-feature/risks-of-cbdcs). While promoting the digital Euro (the EU’s CBDC), Knot tried to assure everyone that the digital Euro would protect people’s privacy. He [said](https://www.dnb.nl/en/actueel/general-news/2024/speech-2024/public-money-keeping-up-with-the-times/), for instance, that “No one needs to know what you pay for with digital euros—just like with cash.” This might *sound* great, but it’s hard to take him seriously because governments have increasingly wanted to know who is paying with cash for decades. Every central banker knows it, and Knot surely knows that different [countries](https://www.refire-online.com/investment/new-german-law-barring-cash-transactions-come-into-effect-in/) [inside](https://www.fca.org.uk/firms/financial-crime/cash-based-money-laundering) of the [EU](https://www.dw.com/en/eu-seeks-cash-payment-limit-tougher-money-laundering-rules/a-68024075) have implemented their own rules that clamp down on cash transactions. In fact, Knot himself [has stressed](https://www.reuters.com/article/netherlands-cenbank-money-laundering/bank-profits-need-to-fall-in-fight-against-money-laundering-ecbs-knot-idUSL8N1YX1CX/) how important it is for banks to act as “gatekeepers” in the fight against money laundering. It’s worse, though. Knot also [acknowledged that](https://www.dnb.nl/en/actueel/general-news/2024/speech-2024/public-money-keeping-up-with-the-times/) the EU has not yet established a legal framework for the digital euro, and that “The balance…between privacy and other public policy objectives, like countering money laundering and illicit activities, is ultimately for the European co-legislators to decide.” So, Knot can’t possibly guarantee that the digital euro would offer any privacy protections, much less stronger protections than those that currently exist. And based on the existing legal frameworks in most developed countries, there’s absolutely no reason to believe such protections will ever materialize—providing them would be a complete repudiation of everything governments have done for the past fifty-plus years. In case there was any doubt, Knot [assured](https://www.dnb.nl/en/actueel/general-news/2024/speech-2024/public-money-keeping-up-with-the-times/) everyone that “the digital euro will, of course, comply with all EU rules on data protection.” Again, while that may *sound* great, in the EU [each customer’s](https://www.milanfintechsummit.com/the-digital-euros-role-in-promoting-a-new-european-economy/) “personal data must be accessible to an intermediary such as a bank, who must collect and verify it to prevent money laundering and the financing of terrorism.” To skirt around this problem, many CBDC advocates want *de minimis* exemptions for using CBDCs, such that “small” transactions might be exempt from much of the anti-money laundering regulations applied to other transactions. Sure enough, Knot [claims](https://www.dnb.nl/en/actueel/general-news/2024/speech-2024/public-money-keeping-up-with-the-times/) that there “will be a holding limit on digital euro holdings.” In other words, people can buy a little bit with their CBDC, but that’s all. At least, for starters. At its core, a CBDC is about further centralizing the supply of money in the government. It is not about competing with the private sector, or merely giving people another payment option. It is about keeping up with technology *only* in the sense that governments are scared to death of losing control over the money supply to decentralized digital money. The problem, though, is that a CBDC centralizes the supply of money in a way autocratic governments have only dreamed about in the past. A fully implemented CBDC gives the government complete control over the money going into *and coming out of* every person’s account. It’s not difficult to see that this level of government control is incompatible with both economic and political freedom. ##### About the Author [![Norbert Michel Cropped](/sites/cato.org/files/styles/author_picture/public/2025-01/norbert-m-cropped.jpg?itok=8WIx97Dk)](/people/norbert-michel) ##### [Norbert J. Michel](/people/norbert-michel) Vice President and Director, Center for Monetary and Financial Alternatives, Cato Institute [ ](https://x.com/norbertjmichel)