Did you know that the Riksbank, the Swedish central bank, decided last year to burn 2.6 million kronor (Swedish currency) in cash that was found in a deceased person’s estate? That the central bank confiscated half a million kronor from a 95-year-old woman? That bank customers - individuals and businesses - are being de-platformed from banking services after trading in cryptocurrencies, that a major bank closed the account of a Swedish journalist last year, or that British banks are denying their customers the ability to transfer their own money to cryptocurrency exchanges?

Today, payment giants like Mastercard, Visa, and PayPal know what you buy, when you buy, and where you buy. And for over a decade, we have been witnessing how they have been taking greater liberties in controlling or even stopping public transactions, regardless of whether they are legal or not. Why should private banks (which in practice aren’t very private at all - due to bailouts and regulations) be allowed to control what we do with our own money?

Note: a version of this article is available in Swedish

Banks seem to launder money like never before, despite all rules and regulations

The intentions behind efforts to prevent money laundering and terrorism may be commendable, but the reality is that these efforts seem laughably ineffective. While the Swedish Riksbank was burning old banknotes, the bank HSBC was found to have laundered funds to the tune of $881 million to Mexican cartels - an amount equivalent to financing nearly 1700 9/11-style attacks. It is also worth noting that most of the regulations on money laundering and terrorist financing were put in place in the wake of the 9/11 attacks, as outlined in section 311 of the PATRIOT Act. Similarly, the Danske Bank money laundering scandal saw the bank potentially involved in the laundering of up to 200 billion euros - an amount equivalent to the funding of almost half a million 9/11-style attacks. These examples demonstrate that the current rules and regulations are clearly not working very well. Yet, despite this, there remains a constant push for more of the same. This is reminiscent of Einstein’s supposed statement that “insanity is doing the same thing over and over and expecting different results.”

Insanity is doing the same thing over and over and expecting different results

The payment system is becoming incompatible with basic freedoms and rights

The harsh reality is that the increasing regulations - perhaps now even a form of regulatory terror? - in the payment system are detrimental to our fundamental freedoms and rights. Unless more attention is paid to this issue, we risk losing our fundamental rights completely in practice, if not on paper.

Envision a future where authorities and large corporations possess the ability to monitor every aspect of your purchases - what you bought, when you bought it, where you bought it and how you bought it. They will also have the power to block your transactions altogether. The next time you swipe your card or tap your chip, you may be met with the message “transaction denied” for reasons that may be arbitrary and unjust. This is the path we are headed down due to today’s narrow-minded focus on regulation, on de-cashing, and the sudden haste to adopt central bank-issued digital currencies with programmable capabilities.

The preservation of basic liberties and rights is of paramount importance in any free society. However, the increasing regulatory focus in the payment system, especially when coupled with the rush towards central bank-issued digital currencies (CBDCs), poses a threat to the freedom of transaction. This freedom, i.e. the ability to pay for goods and services freely and anonymously without external influence, is vital to maintaining the integrity of other liberties such as freedom of assembly, freedom of speech, and freedom of religion. Without it, these fundamental rights will become compromised . The potential for authorities and large corporations to know every detail of our financial transactions and even prevent them altogether is a chilling prospect that must be addressed before it becomes a reality.

Without the freedom to transact you have no freedoms at all

The ability to freely and anonymously transact is a crucial component in preserving other fundamental rights and freedoms. Without the freedom to pay for goods and services without external interference, the ability to exercise one’s right to free speech, assembly, demonstration, and religion is hindered. With CBDCs, the state, companies, or other groups will in the future be able to prevent companies, organisations or individuals from making the necessary transactions to exercise these rights, effectively eroding them. Indeed, without the freedom of transaction, the full realization of these basic liberties becomes an unattainable goal.

For freedom of speech to exist in practice, one needs to be able to print a pamphlet, buy advertising space, pay a web designer, rent web hosting, travel, etc. But if the state, companies, or interest groups can prevent you from making such transactions, this freedom is eroded. That same freedom to transact is required as well for freedom of assembly, to demonstrate, and freedom of religion to exist.

An appetite for absolute control

International heavyweights in the field of central banking, such as the head of the Bank for International Settlements (BIS) Carstens, have declared that central bank currencies will enable “absolute control”. The head of the Federal Reserve, Powell, has said that CBDCs will be identify-verified so “would not be anonymous”. It seems clear that totalitarian control could be enabled with the push of a button, if - or rather when - CBDCs have supplanted cash.

The ability to use cash so far preserves certain liberties, such as the freedom of purchasing eggs at a farmer’s market. However, the decreasing acceptance of cash in countries such as Sweden is already detrimental to freedoms and rights. Perhaps it is time to re-evaluate whether to refer to cash as ‘money’?

Freedoms and rights often ignored by the economics profession

It is furthermore unfortunate to note that economists often seem to be disinterested in issues of freedom and rights. Indeed, some prominent economists have even argued that it can be beneficial to deceive the general public, and that it can be clever to place the blame on others.

Examples include statements such as:

• “private sector led de-cashing seems preferable to the public sector led de-cashing (…) the former seems almost entirely benign” (IMF WP/17/71)
• “the use of banks as intermediaries reduces the political cost of negative interest rates, as interest rates become a PR problem for banks rather than the central bank” (IMF WP/19/84)
• “governments can stuff pension funds full of government bonds, and through regulation force them to accept much lower returns” (IMF WP/13/266)
• “such a “tax on savings” can be good, as it becomes “opaque to most voters” (IMF WP/15/7)

The fact that central banks such as the Riksbank has confiscated and burned banknotes of deceased individuals and pensioners is evidence that the principle of the presumption of innocence has been discarded. This principle dated back at least to ancient Rome, and it states that one is considered innocent until proven guilty. When did we agree to throw this key principle overboard?

Where should society draw the line between the financial sector’s inefficient regulations and our constitutional freedoms and rights? How can we ensure that the rollout of CBDCs do not further undermine our freedoms and rights? Is it not high time for economists to stop monopolizing the debate?

This is about much more than just technology.

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Cover image created with playgroundai. Article inspired by @punk6529.

• money
• central banks
• politics
• freedom
• democracy
• cbdcs