A central bank-issued cryptocurrency could be dangerous in the hands of a dictator, according to a recent UN report.
The UN Economic Commission for Latin America and the Caribbean (ECLAC) published a new report on 1st May which explores how blockchain-based systems could help improve conditions in the region’s financial system. While outlining how the tech could boost transparency and cut the cost associated with international funds transfers, the organization did include some caveats, particularly political ones.
The paper explores the concept of a central-bank issued digital currency (CBDC)– that is, one in which a central bank uses some implementation of blockchain to underlie the issuance of an electronic money distinct from the kinds they maintain today. It’s an area of research being conducted by a range of central banks today, including those in China, Canada and the United Kingdom, to name a few.
Yet such a project – in which an institution would have the ability to see any and all transactions within the network, ostensibly with information about who is making those payments – could poses risks should a more repressive regime take control and have access to those resources.
In particular, this broad control and oversight could empower a dictator to target the financial resources of their political opponents.
The report notes:
“A CBDC would have the potential to be a very potent tool for social repression in the event that a dictator was to come to power. Under CBDC system, this hypothetical dictator would have the ability to deny participation in the financial system to political dissidents, and would also have access to a very complete picture of all entities having financial relationships with those dissidents.”
The report goes on to argue that this approach would be “ill-advised” in certain regions where that lack “a very strong tradition of adherence to the rule of law”. But the authors go on to note that the risk would be lower if that digital currency’s area of usage extended beyond the borders of a single country.
“However, the risk of this happening in any one country would be attenuated in the event that a CBDC was implemented for a currency spanning multiple independent countries, as is currently the case with the East Caribbean dollar,” the authors argue.
The full report can be found below:
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