The Sunday Draft

It’s hard not to feel a little suspicious when a technology born from the desire to decentralise power — like cryptocurrency — is repackaged and reintroduced with the full force of central authority behind it. Enter: Central Bank Digital Currencies (CBDCs).

The name alone sounds like something out of a monetary sci-fi novel. But they’re very real, and quite a few countries are already piloting or rolling them out. India’s e₹ is live. Nigeria’s eNaira is struggling. China’s digital yuan is in advanced testing. And the US? Still debating.

But here’s the thing — and I ask this with genuine curiosity, not cynicism — what exactly are we solving for with CBDCs?

We’ve already transitioned most of our money movement to digital rails. UPI in India, FedNow in the US, PIX in Brazil — all allow near-instant, low-cost transactions. Wallets, netbanking, and mobile banking apps are ubiquitous. Physical cash usage is down, sometimes dramatically. So… why reinvent the rupee?

The answers vary depending on whom you ask:

• Central banks say it’s about maintaining monetary sovereignty, especially in the face of stablecoins and Big Tech wallets.
  
• Economists argue it could improve financial inclusion and provide better monetary policy transmission.
  
• Governments may quietly like the idea of programmable money and greater visibility into economic activity.
  
• Skeptics (ahem) wonder whether we’re drifting toward a surveillance state with programmable expiry dates on your paycheck.
  

Let’s explore that last bit for a moment.

The Double-Edged Sword of Programmability
In theory, programmable CBDCs could enable fantastic innovations: automatic tax payments, conditional transfers, or subsidies that can only be used for essentials. But the same features could also be used to restrict spending, impose negative interest rates, or even “turn off” money. That’s not dystopia — it’s technically feasible, and that’s what makes it so sensitive.

Some central banks say CBDCs will be optional, not mandatory. But if incentives (or penalties) shift adoption sharply, what happens to the option not to opt in?

In places like India, where digital literacy is still uneven, pushing a CBDC too aggressively could alienate the very citizens it’s meant to serve. We’ve already reduced cash dependence significantly with UPI — organically. People adopted it because it worked. Fast, free, and frictionless. Voluntary. That’s the bar CBDCs have to meet, not override.

So, if we do go down this road, here are two non-negotiables to prevent CBDCs from concentrating unprecedented power in the hands of governments:

1. Privacy by Design, Not by Promise

CBDCs must be built with cash-like anonymity for small-value transactions. Privacy shouldn’t be a layer we hope for later — it must be architected into the system. This means allowing users to transact without constant surveillance, much like we do with physical cash. The ECB, for instance, has floated the idea of “offline” CBDC payments that preserve privacy. More of that, please.

2. Independent Governance and Auditability

The technology stack, especially the programmable logic, must be transparent and auditable by independent bodies — not just internal regulators. Think of it like how democracy has an independent election commission. CBDCs too need guardrails beyond the central bank’s internal ethics. Public trust hinges on this.

So, Do We Even Need CBDCs?
Maybe. But need is a strong word.

If the goal is to modernise payments, we’ve already done a pretty good job with current infrastructure. If the goal is deeper control, then we have bigger questions to ask.

What we need, more than new currencies, is clarity: What problem are we solving? Who truly benefits? And how do we ensure that, in solving one problem, we don’t create another — far more dangerous — in the process?

Sometimes, real progress isn’t about doing something new. It’s about doing the right thing — with humility, caution, and a healthy respect for freedom.