CBDC: The Impacts On Freedom, Privacy, & Economic Development

Authored by Pedro Saltini via The Mises Institute,

Recent research highlights a concerning trend: 84 percent of Americans are afraid to exercise their freedom of speech, according to a New York Times Opinion/Siena College Poll. While this statistic alone is alarming, it only scratches the surface of a broader issue—the gradual erosion of personal liberties. This decline extends beyond speech into the domains of thought, cognition, and economic autonomy. As this erosion continues, new technologies threaten to accelerate it. Among these is the development of Central Bank Digital Currencies (CBDCs), which have been at the forefront of recent policy discussions. Though marketed as innovations to improve financial inclusion and efficiency, CBDCs raise legitimate concerns about freedom, privacy, and government overreach.

State Monopolization and the Market

To understand the potential dangers of CBDC adoption, it is critical to revisit Max Weber’s definition of state power. In Politics as a Vocation, Weber describes the state as the institution that successfully claims a monopoly on the legitimate use of physical force within a given territory. This definition is particularly relevant in the context of financial systems. Historically, markets have thrived on competition, innovation, and the decentralized nature of monetary policy. CBDCs, however, represent an attempt by the state to monopolize and centralize financial transactions under one digital umbrella.

Senator Kirsten Gillibrand has articulated that a CBDC could enhance financial inclusion, lower transaction costs, and improve monetary policy. While such benefits may appeal to those unfamiliar with economics, they conceal significant risks. As Friedrich Hayek warned, government control over economic systems is a dangerous path, inevitably leading to greater centralization and reduced personal freedom. The “invisible hand” of the market has proven far more reliable than the visible hand of state intervention. The question is whether we are willing to trade efficiency for liberty.

Lessons from Nigeria’s eNaira

One need only look at Nigeria’s eNaira to glimpse the possible future of CBDCs. Introduced in 2021 following a cryptocurrency ban, the eNaira was supposed to usher in a new era of financial stability. Instead, it became a tool for government control. Initially framed as a way to reduce physical cash transactions and promote digital payments, it soon encountered significant obstacles, including volatility, high transaction costs, and a lack of transparency due to its closed, centralized blockchain.

The Nigerian government imposed strict limits on eNaira wallets, including daily withdrawal caps and balance restrictions. Despite government promises that physical cash would remain in circulation until the eNaira was fully operational, over half the population was left holding worthless old banknotes. This left millions of impoverished Nigerians unable to access basic financial services. Far from promoting inclusion, the eNaira deepened existing economic inequalities.

This case study highlights a crucial lesson: CBDCs are not neutral technologies. They come with inherent risks that disproportionately affect society’s most vulnerable. For developing nations like Nigeria—where over 90 percent of the population lives on less than $6.85 per day—the consequences of poorly-implemented digital currencies are devastating. But even in developed nations like the United States, such policies pose serious risks.

CBDC in the United States

Although the United States is not yet on the brink of adopting a full-scale CBDC, the Federal Reserve has explored the concept. Bank of America suggests that a digital dollar is unlikely in the immediate future. However, the Federal Reserve itself acknowledges several risks associated with CBDCs, such as impacts on financial stability, the cost and availability of credit, and the safety of the broader financial system. These risks are not theoretical; they are grounded in historical experience and economic logic.

Austrian economists have long argued that sound money should emerge naturally through the market, not through state coercion. Ludwig von Mises stated that “the excellence of money lies in its value beyond mere exchange.” Money’s role is to facilitate voluntary exchange and store value—not to serve as a tool for government monitoring and intervention. A CBDC represents a radical departure from these principles, creating a monetary system that is entirely dependent on government policy.

In addition to the financial risks, CBDCs present an existential threat to privacy. The Federal Reserve claims that a future CBDC would aim to balance transparency with consumer privacy. However, as Murray Rothbard argued in The Ethics of Liberty, there is no “balance” to be struck when it comes to privacy. The right to property implies the right to control how that property is used without interference. A CBDC undermines this fundamental right by allowing the state to monitor every transaction, effectively eliminating financial privacy.

Historical Parallels: Lessons from Fiat Money and Gold

The rise of fiat money offers important historical parallels to the current debate over CBDCs. Just as fiat currencies replaced commodity-backed money, CBDCs could replace cash and other forms of decentralized currency. The transition to fiat money was marked by government overreach and monetary instability. As Frédéric Bastiat once observed, “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.” This fiction becomes even more dangerous when applied to money itself.

The Austrian School’s critique of fiat money is directly applicable to CBDCs. Fiat money—unlike gold—has no commodity value and is subject to manipulation by central authorities. Similarly, a CBDC would be little more than a digital token, entirely dependent on government policy for its value. This creates an incentive for governments to inflate the money supply and erode the purchasing power of ordinary citizens. Over time, this could lead to widespread economic instability and social unrest.

How to Oppose CBDC: The Austrian Approach

Given these risks, how can we effectively oppose the development of CBDCs? The Austrian approach offers a clear roadmap. First and foremost, education is key. Many people lack a basic understanding of economics, leaving them vulnerable to misleading narratives about the supposed benefits of digital currencies. It is essential to expose the risks and advocate for alternative solutions rooted in market principles.

Advocacy and resistance are equally important. We must actively defend the few remaining freedoms we still possess. This means supporting policies that promote financial privacy, opposing state surveillance, and encouraging the development of decentralized financial systems. It also means resisting the temptation to trade liberty for convenience. History shows that once freedom is surrendered, they are rarely regained without a struggle.

Finally, we must promote voluntary market solutions. The private sector has already developed numerous alternatives to state-backed digital currencies, from decentralized cryptocurrencies to innovative payment systems. These solutions offer the best hope for preserving financial freedom in the digital age. By encouraging competition and innovation, we can create a more resilient and inclusive financial system—one that empowers individuals rather than subjugating them.

As the debate over CBDCs intensifies, it is crucial to remain vigilant. While proponents may emphasize the potential benefits, we must not lose sight of the risks. The lessons of history are clear: centralized control over money leads to economic instability, reduced personal freedom, and greater government overreach. By embracing the principles of the Austrian School, we can chart a different course—one that prioritizes freedom, innovation, and individual autonomy.