Central bank digital currencies (CBDCs) have been gaining attention, with some policymakers turning to open-source coding as a way to increase transparency and build public trust. However, while transparency is beneficial, it is not a cure-all solution.
Open-source code refers to publicly publishing the source code of a project instead of keeping it confidential. For example, the code behind Bitcoin (BTC) is freely available for everyone to see. This approach allows for external audits, uncovering vulnerabilities or hidden malicious elements within the project.
Being able to access the code behind a project like Bitcoin demonstrates the transparency of its design, such as the 21 million supply cap. It helps establish trust and accountability in the system. However, open-source coding is not a magic solution for the issues plaguing CBDCs.
A case in point is Brazil’s pilot CBDC program, where the source code was made public. Within four days, people discovered surveillance and control tools embedded in the code. Unlike decentralized cryptocurrencies, CBDC users have limited recourse when faced with such issues as CBDCs are centralized and under government control.
While people can voice their concerns, central banks are often controlled by unelected officials who are not accountable to the public. Finding an alternative currency is also challenging as governments tend to suppress currency competition. So, although transparency helps understand how the system works, it does little to empower citizens who want to change the system.
Looking at the US, one can find exceptions in the code that allow the government to disregard financial privacy rights. While transparency reveals the extent of the government’s financial surveillance system, it alone cannot fix the problem.
Norway provides another example where the central bank published the code for its CBDC project. However, this doesn’t guarantee long-term commitment to open-source code, as centralized entities like national governments can change their stance without consulting the public.
The experience in the United States with the Federal Reserve’s CBDC research also highlights that previous commitments to open-source technology may not hold. Projects like “Project Hamilton” resulted in an open-source CBDC model, but the Federal Reserve has seemingly abandoned it.
These examples demonstrate that transparency through open-source coding is not a panacea for the issues posed by CBDCs. While policymakers should be commended for embracing transparency, it is important to recognize that decentralized cryptocurrencies provide individuals with the power to act on that information. CBDCs, on the other hand, risk centralizing money and giving the government extensive power over citizens’ economic choices.
In conclusion, CBDCs cannot replicate the benefits of decentralized cryptocurrencies. The problems associated with CBDCs go beyond the conduct of central banks and raise fundamental questions about the extent of government power. Transparency is valuable, but it is not enough to address these issues.
Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, emphasizes that CBDCs risk centralizing money and giving the government unlimited power. Open-source technology has been instrumental in cryptocurrency development, but it is important to recognize the unique benefits of decentralized cryptocurrencies in reshaping the way people perceive money and finance.