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How Money Works

CBDCs: When Governments Go Digital

Ages 10–14 25 min read Advanced

While Bitcoin was created to take power away from governments, governments are now fighting back with their own digital currencies. They're called CBDCs: Central Bank Digital Currencies.

Over 130 countries (representing 98% of global GDP) are now exploring CBDCs. This could be the biggest change to money in your lifetime.

What Is a CBDC?

A CBDC is digital money issued directly by a central bank. Unlike money in your bank account (which is a deposit at a private bank), CBDC would be a direct claim on the central bank — like digital cash.

China has already launched a CBDC (the digital yuan / e-CNY), used by hundreds of millions of people. The European Central Bank is developing a digital euro. Australia's RBA has run a CBDC pilot program called Project Acacia.

The Case FOR CBDCs

  • Financial inclusion. People without bank accounts could use digital money through their phones.
  • Cheaper and faster payments. No intermediary banks needed.
  • Reduced crime. Every transaction is traceable, making money laundering harder.
  • Monetary policy precision. Central banks could implement policy directly (e.g., stimulus payments sent instantly).

The Case AGAINST CBDCs

This is where it gets serious:

  • Total surveillance. Every transaction you make could be monitored by the government. Cash is anonymous; CBDCs are not. Buy something embarrassing? Donate to a controversial cause? The government would know.
  • Programmable money. CBDCs could be programmed with restrictions: money that expires, money that can only be spent in certain stores, money that's frozen if you do something the government doesn't like. China has already demonstrated this capability.
  • No more bank runs — but also no exit. If all money is digital and controlled by the central bank, there's no way to "opt out" of the system.
  • Power concentration. It gives central banks unprecedented control over individual financial behaviour.

The Privacy Question

Former Bank of England governor Mark Carney acknowledged that privacy is a major concern. The question is: do we trust governments with this power? History shows that surveillance capabilities, once created, tend to be used and expanded.

As the saying goes: "The road to a surveillance state is paved with convenience."

Tonight's Question

"Would you be okay with the government knowing every single thing you buy? What if they said it would stop crime?"

This is one of the biggest questions of our generation. Privacy vs security. Freedom vs control.

Cash vs Digital Debate

  1. Split the family into two teams: Team Cash and Team Digital.
  2. Team Cash argues why physical cash must be preserved.
  3. Team Digital argues why a fully digital currency would be better.
  4. Each team gets 5 minutes to present their case.
  5. Vote: which side was more convincing?
  6. Discuss: is there a middle ground?

Go Further

  • Research: China's digital yuan (e-CNY) — how is it being used? What controls does it have?
  • RBA: Look up "Project Acacia" — Australia's CBDC research program.
  • Question: Should there be a law protecting the right to use cash? Some countries are considering this.
  • Book: The War on Cash by Brett Scott (2022) — a critical look at the push to eliminate physical money.

What We Simplified

  • Not all CBDCs are the same. Some designs prioritise privacy more than others. The European digital euro proposals include offline anonymous payments for small amounts.
  • Cash is already declining. In Australia, cash transactions dropped from 70% to 13% of payments between 2007 and 2022 (RBA). The shift to digital is happening with or without CBDCs.
  • Banks play a role. Most CBDC proposals involve commercial banks distributing the digital currency, not the central bank directly serving individuals.

Sources

  • Atlantic Council (2024). "Central Bank Digital Currency Tracker." Atlantic Council
  • RBA (2023). "Australian CBDC Pilot — Project Acacia." RBA
  • RBA (2022). "Consumer Payments Survey." RBA
  • Auer, R. et al. (2022). "Central Bank Digital Currencies: Motives, Economic Implications, and the Research Frontier." Annual Review of Economics, 14.
  • Scott, B. (2022). Cloudmoney: Cash, Cards, Crypto, and the War for Our Wallets. Bodley Head.

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