Pros and Cons of Government-Backed Digital Money

Considering traditional cryptocurrencies continue to struggle when it comes to mass adoption and the broad crypto industry still had room for improvements, the idea of government-control digital money is gaining traction. China is already testing such a project and other countries are starting to embrace this concept, despite being reluctant at the beginning.  Because of that, we would like to analyze two benefits and two downsides that could materialize in case these types of currencies will someday become the new normal.

# Increased transparency

One of the first benefits of digital money introduction can have to do with transparency. The public will be able to know how their hard-earned money will be spent by elected officials, increasing the trust in government institutions. If we look across the democratic world, the confidence in the political class is at multi-decades low and increased transparency can have a meaningful positive effect.

# More government control

However, on the negative side, the government-controlled digital money will mean more control in the hands of a few. Most people are confused when believing that such a cryptocurrency will be exactly like fiat money in a bank account. In fact, the government will be able to monitor and control each monetary unit in circulation, and in some cases, that won’t be good for a society based on the right to freedom.

# Reduced tax evasion

The introduction of electronic money will enable the development of new systems that can eventually prevent large-scale tax evasion. This continues to be one of the main struggles, even in developed countries and regardless of the prevention methods implemented so far, some people can find ways to bypass the new requirements. When everybody uses e-money, that won’t be possible any longer.

# Limited privacy

Lastly, our second con regarding government-backed money has to do with privacy. Traditional cryptocurrencies might be decentralized and away from central control, but that’s not the case when the governments step in. Cryptocurrencies like Ether and Bitcoin are volatile, but with public digital currencies, some authorities will have access to confidential data about how people spend money and using it, they can create different models to influence the public opinion on various matters.

Although the technological advancements had been beneficial, the privacy issues continue to spark many debates and they will continue to amplify in case we’ll see digital money embraced at the national level. What’s your take on this issue? Do you believe the world will benefit from such an implementation, or the downsides will negate any positive implication?