IMF publishes multi-year plan to implement CBDCs; it may spell the end of our financial freedom and autonomy

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On 10 April, the International Monetary Fund (“IMF”) published the ‘IMF Approach to Central Bank Digital Currency Capacity Development’. It outlines the IMF’s multi-year strategy for aiding central bank digital currency (“CBDC”) rollouts, including the development of a living ‘CBDC Handbook’ for monetary authorities to follow.

As it develops, and includes more details, chapters 8–11 will be of particular interest to us as they relate to the centralised control over our lives using CBDCs that we, the consumers, are most concerned about.

Chapter 8, for example, “will identify design choices, such as operating model, limits in holding, programmability, interest-bearing, and degree of centralisation.” And Chapter 11 “will consider the trade-off between data use and privacy protection,” including “what data are generated by CBDC transactions and which institutions might have access to it.”

Programmable Money and Programmability

Programmable money does not appear to have a clear definition.

Last week, IMF Deputy Director Monetary and Capital Markets Department, Dong He, briefly mentioned at a seminar on CBDCs the programmability of CBDCs. “It can be used as a fiscal tool; it can be used for the Internet of Things.” But he doesn’t go into any detail as to what “programmability” means or what effects it has on consumers.

Watch He’s presentation at the ‘Asia Pacific Regional Seminar on Central Bank Digital Currency’ from timestamp 12:54 in the video HERE.

Alexander Lee of the US Federal Reserve wrote in June 2021, the term “programmable money” remains ill-defined. Lee differentiates between “programmable money” and “programmability.” He defines “programmability” as the “mechanism for specifying the automated behaviour of a digital form of money through a computer program.” And he identifies two components of “programmable money”: a digital form of money and programmability. However, Lee warns, “It is not clear whether these components alone are sufficient for a definition, given that various combinations of similar technology for payments automation have existed for decades.”

There have been many claims, for example in a report by the Deutsche Bundesbank, that adding programmability to a CBDC could bring a plethora of economic benefits. However, The FinReg Blognoted, many of the claimed benefits either already exist or could be developed within existing systems.

The SEACEN Centre described programmable money as money with constraints. “It seems to be based on the notion that since money is already digital and exists as records on computers at commercial and/or at central banks, then it is programmable.” You can have programmable central bank money, programmable commercial bank money, programmable e-money (sometimes called stablecoins) and programmable any type of money.

Covid-19 and the ensuing unprecedented economic stimulus seem to have created a mini force towards programmable money. As noted above, programmable money is money with constraints. An analogy is food stamps, where recipients are given coupons, the equivalent of money, which can be spent only on food ‒ not on alcohol, betting on horses, lottery tickets or anything else. In modern guise, these “food stamps” are digitised tokens transacted on a blockchain platform with smart contracts.

Programmable Money and CBDC, The SEACEN Centre, 7 December 2020

Finextra identified the risks of CBDCs and highlighted the risks of connecting CBDCs to digital identities:

CBDC pose a combination of risks to consumers – financial, economic and human rights that are potentially severe if a CBDC is designed badly or with bad intent.

Human Rights Risks

If designed inappropriately, CBDCs have the potential to be used as tools of surveillance and control by governments. Every transaction is recordable and any authority with access to the CBDC ledger could see all transactions. They could also control individuals through the ledger – such as putting expiry dates on their CBDC, limiting how much they can hold, varying interest rates and prices depending on who they are, preventing purchases and automatically deducting fines.

The combination of digital identity and CBDC is also a big risk. Access and addressability are needed for digital payments but these are different to digital identity. In a world of programmable money, digital identity can go beyond just enabling access to your funds. Use of those funds can be made conditional on attributes of your digital identity. If those funds are in CBDC, then the central bank and by implication, the government can control directly how you spend and receive money.

Be wary of anyone advocating for digital identity to be connected to CBDC – while digital identity is needed to find fraudsters, money launderers and other criminals, there is no monetary reason to combine CBDC with digital identity.

The Risks to Society of Central Bank Digital Currencies, Finextra, 17 January 2022

Yet, connecting CBDCs to digital identities seems to be exactly what Central Bankers are proposing.

Connecting CBDCs to Digital IDs

On 27 September, France’s central bank — the Banque de France — held an international roundtablein which central bankers from the US and the EU confirmed that digital dollars and euros, should they go forward, would not be anonymous.

Federal Reserve Chair Jerome Powell said that concerning an American CBDC rollout one of the characteristics is that “[the CBDC] is identity verified, so it would not be anonymous. It would not be an anonymous bearer instrument.”

Banque de France: Opportunities and challenges of the tokenisation of finance, 27 September 2022

Christine Lagarde, President of the European Central Bank, said: “In terms of anonymity, there would not be complete anonymity as there is with bank notes.”

Banque de France: Opportunities and challenges of the tokenisation of finance, 27 September 2022

In other words, CBDCs would require some form of digital identity scheme. And what is the purpose of a digital identity? The World Economic Forum has clearly stated how they envision it:

This digital identity determines what products, services and information we can access – or, conversely, what is closed off to us.

Identity in a Digital World: A new chapter in the social contract, Insight Report, World Economic Forum, September 2018, pg.5

CBDCs, Programmability and Digital Identities

The following is extracted from the article ‘IMF is creating a ‘CBDC Handbook’ for central bank, govt rollouts’ published by The Sociable.

A digital identity encompasses everything that makes you unique in the digital realm, and it is a system that can consolidate all of your most personal intimate data, including which websites you visit, your online purchases, health records, financial accounts and who you’re friends with on social media.

It can be used to determine what products, services, and information are available to you, and it can certainly be used by public and private entities to deny you that access.

Identity in a Digital World: A new chapter in the social contract, Insight Report, World Economic Forum, September 2018, pg.10

According to the Bank for International Settlements (“BIS”) Annual Economic Report 2021: “The most promising way of providing central bank money in the digital age is an account-based CBDC built on digital ID with official sector involvement.”

Apart from the elimination of total anonymity, CDBCs also run the risk of having every transaction recorded while being fully programmable, which means financial institutions and their customers could have total control over where, when, and how your money is spent.

Bank of Russia deputy governor Alexey Zabotkin gave a real-world example of what CBDC programmability could look like when he spoke at the annual cybersecurity training exercise Cyber Polygon back in 2021.

There, Zabotkin explained: “This [digital ruble] will permit better traceability of payments and money flow, and also explore the possibility of setting conditions on permitted terms of use of a given unit of currency. Just imagine that you are able to give your kids some money in digital rubles and then restrict their use for purchase of junk food, for example. That would be a useful functionality for a customer, and of course, you can come up with hundreds of other similar use cases.”

Speaking at the BIS Innovation Summit in March 2023, Lagarde highlighted that central banks themselves had no interest in programming CBDCs but that commercial banks certainly did.

“For us [central banks], the issuance of a digital currency that would be central bank money would not be programmable – would not be associated with any particular limitation, whether it’s in time, in type of use – that to me would be a voucher. It wouldn’t be a digital currency,” said Lagarde.

“Those who can associate the use of digital currency with programmability would be the intermediaries – would be the commercial banks,” she added.

Concerning user anonymity and anonymous transactions, Lagarde conceded that “A digital currency will never be as anonymous and as protecting of privacy in many respects as cash, which is why cash will always be around.”

Speaking at an IMF seminar on 19 October 2020, BIS general manager Augustin Carstens explained that a major difference between CBDC and cash is that a CBDC gives the central bank both “absolute control” over the use of the CBDC, as well as the technology to enforce that control.

“We tend to establish the equivalence with cash, and there is a huge difference there,” Carstens said in 2020.

“For example, in cash we don’t know for example who’s using a 100 dollar bill today. We don’t know who is a 1,000 peso bill today.

“A key difference with a CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also, we will have the technology to enforce that.

“Those two issues are extremely important, and that makes a huge difference with respect to what cash is.”

IMF: Cross-Border Payment – A Vision for the Future, 19 October 2020

In October 2022, IMF deputy managing director Bo Li, the same man now praising the ‘CBDC Handbook’, explained how CBDCs could be programmed.

“CBDC can allow government agencies and private sector players to program – to create smart contracts – to allow targeted policy functions. For example, welfare payment; for example, consumption coupons; for example, food stamps,” said Li.

“By programming CBDC, those [sic] money can be precisely targeted for what kind of people can own and what kind of use this money can be utilised,” he added.

Li also noted that institutions could take advantage of CBDC transactional data by following the model of Communist China where “non-traditional data can be very useful for financial service providers to give me a credit score.”

CBDCs, coupled with digital ID, erode the ability for citizens to transact anonymously.

As Willamette University College of Law assistant Professor Rohan Grey testified in the US House of Representatives in June 2021: “Transactional anonymity, like anonymity more broadly, is a public good and a core bedrock of political freedom in a democratic society.”

Ultimately, a CBDC linked with digital ID could allow governments and corporations to put permissions on what you can buy with your own money, including expiration dates on when you can spend it.

It is a system ripe for total surveillance and control over many aspects of society, and it paves the way for an authoritarian system of social credit that incentives, coerces, and otherwise manipulates citizen behaviour.

With its upcoming ‘CBDC Handbook’, the IMF now has a multi-year plan to assist central banks and governments all over the world to implement what may spell the end of financial freedom and autonomy as we know it.