The Ethics of Control: Can CBDCs Uphold Freedom in a Digital Age?

This article follows our previous analysis on South Korea’s strategic approach to currency reform and digital sovereignty. Read Part I here → Currency as Strategy: Why South Korea Must Lead the Next Financial Order

In the global race toward monetary modernization, few innovations have generated as much excitement—and anxiety—as Central Bank Digital Currencies (CBDCs). Touted as a breakthrough in payment efficiency, transparency, and policy agility, CBDCs represent a fundamental shift in how states design, distribute, and potentially control money.

But as central banks around the world explore the promise of programmable currencies, a deeper and more uncomfortable question has begun to surface:
What happens when the money in your account isn’t just yours—but also embedded with rules set by someone else?

Unlike traditional cash, CBDCs are inherently traceable, potentially programmable, and centrally issued. These features make them ideal for targeted fiscal policy and efficient welfare delivery—but also raise alarms about surveillance, state overreach, and the erosion of financial autonomy. For many, particularly in democracies, the concern is no longer technical feasibility, but governance legitimacy.

As China accelerates deployment of its digital yuan with built-in usage controls, and as other nations watch closely, the stakes have become clear. The debate around CBDCs is no longer just about infrastructure. It is about freedom. And the decisions made today will shape not only the future of payments—but the future of citizenship.

The Emerging Fears – From Innovation to Invasion

The very features that make CBDCs appealing to governments—traceability, programmability, and central control—are precisely what make them troubling to civil libertarians and skeptics. What starts as a technological leap forward can quickly begin to feel like a mechanism of intrusion, raising fundamental questions about financial freedom, surveillance, and state power.

Critics warn of a future where every transaction is visible to the central bank, where spending can be limited to pre-approved categories, and where money itself can expire if not used within a government-mandated time frame. In such a system, cash—the last truly anonymous form of payment—could disappear, and with it, the privacy and autonomy long associated with it.

These fears are not hypothetical. China’s rollout of the digital yuan has provided a real-world example of how CBDCs can be engineered for behavioral control and political compliance. Trials of the currency have included programmable features such as expiry dates and usage restrictions, limiting the ways in which individuals can spend the money they receive. Moreover, integration with national surveillance systems has led some observers to describe the digital yuan not as currency—but as a tool of statecraft.

The result is a growing perception that CBDCs, if left unchecked, could shift the balance of power away from citizens and toward the state, turning money into a lever of behavioral governance rather than a medium of economic freedom.

Even in democratic societies, the idea of a programmable currency provokes discomfort. What if tax incentives become embedded in money itself? What if dissenting voices face algorithmic throttling of their access to funds? While these scenarios may seem extreme, the architecture of CBDCs makes them technically possible, even if politically unacceptable—for now.

As governments explore the rollout of digital currencies, they must confront a difficult truth: The same tools that enable efficiency can also enable control. And unless these systems are built with privacy, transparency, and institutional checks at their core, the line between modernization and manipulation may become dangerously blurred.

Not All CBDCs Are Created Equal – The Role of Institutional Design

While concerns about surveillance and state overreach are valid, they often assume a singular model of CBDC—one where the central bank directly controls citizen wallets and monitors every transaction. But in reality, CBDCs are not a one-size-fits-all technology. The way they are implemented depends on institutional design, legal architecture, and the values of the societies deploying them.

In many democratic countries, central banks are already exploring multi-tiered models that limit their direct interaction with individuals. Under this model—often called the “two-tier architecture”—the central bank issues the digital currency but does not directly manage user accounts. Instead, commercial banks and licensed payment providers continue to interface with the public, preserving market diversity and decentralization of control.

Furthermore, several central banks, including those of Sweden, the European Union, and Japan, are actively investigating how to incorporate privacy-enhancing technologies into their CBDCs. These include systems where low-value transactions are anonymous, while larger or suspicious transactions trigger standard regulatory oversight—much like today’s cash and bank systems.

In addition, legal frameworks can play a powerful role in setting boundaries. For instance, democracies can enshrine in law that programmable features of CBDC—such as expiration or purpose restrictions—can only be applied under specific circumstances and with parliamentary approval. Constitutional protections for privacy and property rights can be expanded to cover digital money, ensuring that CBDCs do not erode civil liberties by default.

This diversity of approaches underscores a critical point:

It is not the technology itself that determines whether CBDCs become tools of liberation or tools of control. It is the governance behind them.

In countries with strong legal systems, transparent institutions, and active civil societies, CBDCs can be designed to serve the people, not rule them. The key lies in ensuring that the technical possibilities of CBDCs are constrained by democratic principles and public oversight, not dictated by unchecked bureaucratic power.

Ultimately, how CBDCs evolve will depend not only on engineers and economists—but on constitutional lawyers, ethicists, elected officials, and citizens themselves.

Freedom by Design: How to Build a Democratic CBDC

If central bank digital currencies are to serve democratic societies, their architecture must reflect the values they are meant to uphold. A truly ethical CBDC is not merely an efficient payment mechanism; it is a public trust instrument—one that safeguards rights while enabling innovation. Its legitimacy, therefore, depends not only on technical robustness, but on how deliberately it embeds privacy, accountability, and individual freedom into its very design.

One of the most essential principles is that privacy must be the default, not a conditional benefit granted by the state. Democratic CBDCs should incorporate tiered privacy systems, allowing for anonymous or pseudonymous small-value transactions—mirroring the role that cash plays in everyday economic life. Only when transactions surpass regulatory thresholds or exhibit suspicious patterns should oversight mechanisms apply, and even then, strictly under existing legal frameworks such as anti-money laundering statutes. Without this foundational assurance, CBDCs risk being perceived less as currency and more as a surveillance tool.

Equally critical is the need to avoid centralized power by preserving a two-tier architecture. Central banks should issue the currency but refrain from directly managing user accounts. Instead, distribution and user access should be facilitated through licensed commercial banks and fintech intermediaries. This model not only preserves decentralization and operational flexibility, but also protects against the accumulation of financial and data authority in a single state entity—a scenario that could imperil both market competitiveness and civil liberties.

Where programmability is involved, it must be applied with caution and bounded by law. While programmable features can enable targeted policy tools—such as expiring relief funds or conditional stimulus payments—they must never be used to limit how individuals spend their money outside clearly defined and democratically approved interventions. All programmable elements should be time-limited, subject to legal constraint, and transparent in both scope and purpose. In a democracy, money must enable autonomy, not prescribe behavior.

The governance of a CBDC must also extend beyond technocratic control. Independent audit mechanisms, regular legislative review, and genuine channels for public participation are essential. Citizens should have visibility not only into how the system operates, but also into who holds the power to change its rules. A CBDC that lacks democratic oversight risks becoming an unaccountable platform of power—even if well-intentioned in design.

Finally, any vision of digital currency must acknowledge that some citizens may choose not to go digital at all. Whether for reasons of privacy, access, or habit, physical cash remains a crucial component of financial life for many—especially the elderly, the unbanked, and rural populations. In this light, the coexistence of cash and digital currency is not a redundancy, but a safeguard. Cash offers anonymity, universal accessibility, and requires no device, network, or third-party gatekeeping. It is the final bastion of private economic activity in a hyper-connected age.

Countries like Japan and the European Union have already affirmed this reality, emphasizing that CBDCs must complement, not replace physical currency. The European Central Bank has even declared cash a public good that should remain universally available. Korea, with its digital capabilities and democratic maturity, has an opportunity to lead in institutionalizing a dual-track system that preserves both efficiency and choice. The transition toward digital money should not be governed solely by technical feasibility—it must be grounded in social consensus and voluntary adoption. Trust, after all, is not something that can be downloaded. It must be earned.

In sum, a democratic CBDC is not just a financial tool—it is a constitutional construct. Designed with care, it can be a force for inclusion, autonomy, and resilience. But to achieve that, it must place freedom—not control—at its core.

Korea’s Opportunity: Lead by Trust, Not Control

As the world grapples with the governance dilemmas posed by CBDCs, South Korea finds itself uniquely positioned. With advanced digital infrastructure, a mature regulatory ecosystem, and a deep-rooted commitment to democratic values, Korea has the rare ability to chart a middle path: one that leverages the efficiency of digital currencies without sacrificing the liberties of its citizens.

While nations like China promote control-oriented models of programmable money, Korea can offer a compelling counter-narrative—one grounded in trust, accountability, and ethical design. This is not merely a domestic opportunity; it is a chance for Korea to export a governance philosophy, not just a technology.

A Korean CBDC, if developed with the right principles, could become a blueprint for value-based monetary innovation—resonating with countries that seek alternatives to both the surveillance-driven digital yuan and the dollar-dominant status quo.
By forging regional CBDC interoperability frameworks with countries in Southeast Asia, Central Asia, and Africa, Korea could extend digital inclusion, promote trade trust, and reduce dependency on politically volatile global systems.

This form of leadership would not rely on monetary hegemony, but on credibility—on offering a system others choose to adopt not out of fear or coercion, but because it aligns with their own aspirations for sovereignty and fairness.

Domestically, such a move would also reinvigorate Korea’s own social contract. By involving citizens in the design process and protecting financial privacy, the state would send a powerful message: that economic modernization is not a pretext for control, but a vehicle for empowerment.

In a world where power is increasingly embedded in platforms, protocols, and code, Korea’s opportunity lies not in domination—but in designing systems that others trust.

➤ For more context, see Part I: Currency as Strategy