Government have worldwide started a crackdown on Public Digital Currency (“PDC”) to fiat and fiat to PDC’s access points, this crackdown intensified in 2018 and no deceleration of this trend is expected in the near future. Anti-money laundry and terrorist financing are key arguments used by governments.

This does not mean that governments are not interested in cryptocurrencies, the opposite is actually the case. In Europe (led by Bank of England and central bank of Sweden) governments are actively looking into central bank digital currencies (“CBDC”).

With the best intentions of cryptocurrency protagonists in place, we will most likely see the rise and adoption of CBDC by the general public before PDC’s. In time CBDC will likely fail and the general public will potentially resort to PDC’s. I expect that the rise of CBDC will decrease the adoption speed of PDC’s as the general public first needs to witness the abuse of CBDC’s possibilities by governments. This could evolve in the following pattern:

• Governments will issue their CBDC on private chains. Exchange possibilities will be set-up between CBDC’s and governments will ban PDC and other forms of payment outside their network. Enforcement will be subject to new regulation and penalised by criminal prosecution.
• Once all currency flows are controlled, full transactional monitoring by governments is a fact.

New monetary and political tools become available once countries shift from current electronic / paper currency to CBDC’s, examples as per below:

• Automatic taxation on wealth, VAT etc.
• Steering and controlling society by high tax on “unhealthy products” directly controlled via smart contracts.
• Social benefits restricted to usage for specific products.
• Negative interest rates automatically be settled via smart contract forcing people to spend money.
• Capital controls become possible.

CBDC’s will potentially increase transparency on government spending, dramatically reduce accounting expenses due to automatic reconciliation and exclusion of double spending and bring real-time worldwide payments closer.

So far we have seen a lot of positive elements of CBDC’s. Looking at these positive elements from a government’s perspective and taking into account the legislative and enforcement power of governments it is unlikely that PBC’s will gain mass adoption / traction in the close future.

Only after the general public will witness the abuse of CBDC’s by governments (high taxation, property forfeiture etc.) a shadow payment network in the form of a PDC may find wide adoption. Other forms of shadow payment networks are the use of foreign currency or another forms of value like silver, gold etc. Arguments that CBDC will likely decrease the underground economy are debatable. It could be that the underground economy will actually paved the way for the general population to escape the control of CBDC’s.

Bitcoin as an asset is another story, I can see governments diversifying their reserves with partial allocation to Bitcoin when we shift slowly towards a multipolar world order. This topic requires an article on its own.