Given how much is at stake, this financial revolution is among the most important questions today’s societies could possibly grapple with. It should be under discussion in every parliament of every land, and every dinner table in every country in the world.
Around 90 central banks are either in the process of experimenting with or are already piloting central bank digital currencies (CBDCs). In a world of just over 190 countries that is a large contingent, but given they include the European Central Bank (ECB) which alone represents 19 Euro Area economies, the actual number of economies involved is well over 100. They include all G20 economies and together represent more than 90% of global GDP.
Three CBDCs have already gone fully live in the past two years: the so-called DCash in the Eastern Caribbean, the Sand Dollar in the Bahamas and the eNaira in Nigeria. The International Monetary Fund, the world’s most powerful supranational financial institution, has been lending its expertise in the roll out of CBDCs. In a recent speech the Fund’s President Kristalina Georgieva lauded the potential benefits (on which more later) of CBDCs while heaping praise on the “ingenuity” of the central banks busily trying to conjure them into existence.
Also firmly on board is the world’s largest asset manager, BlackRock, which helps many of the world’s largest central banks, including the Federal Reserve and the ECB, manage their assets while obviously keeping all potential conflicts of interests at bay. The fund was the largest beneficiary of the Federal Reserve’s bailout of exchange-traded funds during the market rout of Spring 2020.
In his latest letter to investors, the CEO of BlackRock, Larry Fink, said the Ukrainian conflict has the potential to accelerate the development of digital currencies across the world.
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades As a result, a large-scale reorientation of supply chains will inherently be inflationary…
“The war will prompt countries to re-evaluate their currency dependencies. Even before the war, several governments were looking to play a more active role in digital currencies and define the regulatory frameworks under which they operate…
A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption. Digital currencies can also help bring down costs of cross-border payments, for example when expatriate workers send earnings back to their families.”
On Tuesday (March 22), the Bank for International Settlements published the findings of a study it had conducted with four central banks — the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank — into the practical challenges of executing cross-border payments between different central bank digital currencies. The report concludes that while major hurdles still remain, financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform:
The Bank for International Settlements (BIS) Innovation Hub, the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank today announced the completion of prototypes for a common platform enabling international settlements using multiple central bank digital currencies (mCBDCs).
Led by the Innovation Hub’s Singapore Centre, Project Dunbar proved that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform. This has the potential to reduce reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border transactions.
The project was organised along three workstreams: one focusing on high-level functional requirements and design, and two concurrent technical streams that developed prototypes on different technological platforms (Corda and Partior).
The project identified three critical questions: which entities should be allowed to hold and transact with CBDCs issued on the platform? How could the flow of cross-border payments be simplified while respecting regulatory differences across jurisdictions? What governance arrangements could give countries sufficient comfort to share critical national infrastructure such as a payments system?
The project proposed practical solutions for addressing these issues, which were validated through the development of prototypes that demonstrated the technical viability of shared multi-CBDC platforms for international settlements.
The findings of the experimental CBDC program could assist in the adoption of CBDC international settlement for G-20 nations, though given the rising geopolitical fissures in the so-called “international rules based order”, it is far from clear which countries would be willing to engage with one another in such a way.
China has already launched its own digital yuan and is piloting its use in more than a dozen cities and regions. It has also been experimenting with its cross-border functionality. This has ignited fears in the West that that U.S. “financial leadership” is under threat — fears that have been magnified by the way US and EU sanctions against Russia, particularly the confiscation of a large chunk of Russia’s foreign currency reserves have backfired, encouraging not just Russia but many countries on the planet to seek out an alternative cross-border payments system.
At the same time, the U.S. is determined to continue playing a leading role in the new global financial architecture. To that end, it has cobbled together a tentative consortium of “seven of the largest Western-aligned central banks, led in practice by the U.S. Federal Reserve and the European Central Bank… aimed at creating a system of ‘interoperable’ CBDCs,” reports Washington DC-based blogger and analyst NS Lyons in the article, Just Say No to CBDCs.
But what are CBDCs? How will they work? What purposes could they serve? How might they affect the general populations of the countries where they are introduced? To answer the first two questions, here’s an excerpt from “Just Say No to CBDCs“:
You might assume that you are already using “digital currency” regularly if you rarely use physical cash anymore and instead buy almost everything with a credit card or a digital payment app. In truth, the process of moving money from A to B is vastly more complicated than that. It involves a tangle of payment processors, banks, financial clearinghouses, and, if your money is crossing borders, international communication and exchange systems, such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The money itself doesn’t move anywhere fast, so each intermediary institution must assume risks to fulfill your transaction by accepting promises, sending transfers, verifying receipt of funds, and so on. Many fees get collected along the way for such services.
A CBDC system would be radically simplified. A customer would open an account directly with a country’s central bank, and the central bank would issue (create) digital money in the account. Crucially, this makes the money a direct liability of the Fed, rather than of a private bank. Using a simple smartphone app or other tools, the customer can then initiate direct transactions between Fed accounts. The digital money is deleted in one account and recreated in another instantaneously. Moving money across borders no longer requires something as complex as SWIFT or wire transfers, and currencies can be exchanged instantly as long as friendly central banks have agreements to do so. No promises or trust are necessary; every transaction is permanently recorded on a digital cryptographic ledger in real time—a bit like Bitcoin, but exquisitely centralized rather than distributed.
This brings us to question 3: what purposes will CBDCs serve? The most commonly cited justification for launching CBDCs is to counter the risk posed by so-called “stable coins”, which are relatively new forms of cryptocurrency that are pegged to the value of a fiat currency (e.g, the dollar or the euro), to material assets such as gold or property, or to another cryptocurrency.
There are also concerns that tech giants will begin challenging established banks and payment operators for market share in the financial sector, as already happened in China with Tencent and Alibaba. As a recent UK parliamentary report titled “Central Bank Digital Currencies: A Solution in Search of a Problem?!” put it, “the use of physical cash is in decline in many countries and some central banks are worried that this could undermine public confidence in the monetary system if individuals are unable to convert commercial bank money into cash, which is a direct claim on the state.”
In March 2020, the Bank of England published a consultation which set out seven ways in which a CBDC could support the Bank’s objectives to maintain monetary and financial stability:
- By supporting a resilient payments landscape.
- By avoiding the risks of new forms of private money creation.
- By supporting competition, efficiency and innovation in payments.
- By meeting future payment needs in a digital economy.
- By improving the availability and usability of central bank money.
- By addressing the consequences of a decline in cash.
- As an enabler for better cross-border payments.
In a speech to mark the launch of the G7’s report on central bank digital currencies, the UK’s Chancellor of Exchequer Rishi Sunak described CBDCs as “part of the wider story of digital innovation” that is sweeping the planet. But most people in the West are not even aware of CBDCs, let alone how they could impact their lives. According to a survey by G+D Currency Technology, one of the companies helping to develop CBDCs, less than 20% of people in the U.S. and Germany were respectively aware of the digital dollar or the digital euro.
So how could CBDCs impact our lives? Here are four of the most important ways:
It will grant central banks far more power over our payment behavior. A central bank digital currency system will technically no longer require middlemen such as banks or credit card companies. That said, one can safely assume that the largest financial institutions, most of which have been helping to install the architecture for the CBDC system, will find a new role in the new digital reality. NS Lyons notes:
[Central banks] will retain complete oversight and control over the creation, destruction, and “movement” of money, no matter where it is “held” or who “has” it. As Agustin Carstens, general manager of the Bank of International Settlements put it at a 2020 summit of the IMF: “We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control [over] the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.”
That power could be used to “program” our spending. One way central banks could use its expanded influence is to exert control over people’s spending habits. In June 2021, the Daily Telegraph reported (behind paywall) that the Bank of England had asked Government ministers to decide whether a central bank digital currency should be “programmable”. According to Tom Mutton, a director at the Bank of England, “There could be some socially beneficial outcomes from that, preventing activity which is seen to be socially harmful in some way.” This could bring huge advantages for both government and central banks, says Lyons:
The Fed could directly subtract taxes and fees from any account, in real time, with every transaction or paycheck, if it wished. There could be no more tax evasion; the Fed would have a complete record of every transaction made by everyone. Money laundering, terrorist financing, any other unapproved transaction would become extremely difficult. Fines, such as for speeding or jaywalking, could be levied in real time, if CBDC accounts were connected to a network of “smart city” surveillance. Nor would there be any need to mail out stimulus checks, tax refunds, or other benefits, such as universal basic income payments. Such money could just be deposited directly into accounts. But a CBDC would allow government to operate at much higher resolution than that if it wished. Targeted microfinance grants, added straight to the accounts of those people and businesses considered especially deserving, would be a relatively simple proposition.
Other potential forms of programming applications include setting expiry dates for stimulus funds or welfare payments to encourage users to spend it quickly.
As the FT reported, central bank digital currencies will almost certainly have to go hand in hand with digital IDs: “What CBDC research and experimentation appears to be showing is that it will be nigh on impossible to issue such currencies outside of a comprehensive national digital ID management system. Meaning: CBDCs will likely be tied to personal accounts that include personal data, credit history and other forms of relevant information.”
Combining digital currencies with digital IDs while phasing out, or even banning, the use of cash would grant governments and central banks the ability not only to track every purchase we make but also to determine what we can and cannot spend out money on.
They could also be used to strongly encourage “desirable” social and political behavior while penalizing those who do not toe the line. As Lyons points out, “The most dangerous individuals or organizations could simply have their digital assets temporarily deleted or their accounts’ ability to transact frozen with the push of a button, locking them out of the commercial system and greatly mitigating the threat they pose. No use of emergency powers or compulsion of intermediary financial institutions would be required: the United States has no constitutional right enshrining the freedom to transact.”
No limit on negative interest rates. Beyond having far greater control over people’s spending habits, central banks would also have the possibility of taking interest rates into far deeper negative territory. If there is no cash, there is no means for people to escape negative rates no matter how negative they go. This is one of the benefits often lauded by Harvard economist Kenneth Rogoff of a completely cashless society. Yet central banks continue to insist that physical cash will not be eliminated once the CBDCs are fully operational. But as I’ve noted previously, central banks are not exactly known for keeping their word.
Financial exclusion on steroids. One of the most important benefits of cash is its universality, making it a vital public good, particularly for the poorest and most vulnerable in society. Also excluded in a purely cashless society would be anyone who objected to having others spy on their transactions (h/t hickory). As I note in my book, Scanned: Why Vaccine Passports and Digital Identity Will Mean the End of Privacy and Personal Freedom, if central banks and governments were to do away with cash or to vastly accelerate its demise by penalizing its use (while incentivizing the use of CBDCs), we would probably see a huge increase in financial exclusion:
Even proponents of CBDCs admit that central bank digital currencies could have serious drawbacks, including further exacerbating income and wealth equality.
“The rich might be more capable than others of taking advantage of new investment opportunities and reaping most of the benefits,” says Eswar Prasadm a senior fellow at the Brookings Institute and author of The Future of Money: Hoe the Digital Revolution Is Transforming Currencies and Finance. “As the economically marginalized have limited digital access and lack financial literacy, some of the changes could harm as much as they could help those segments of the population.”
So, not only will the introduction of CBDCs strip global citizens of one of the last vestiges of freedom, privacy and anonymity (i.e., cash), it could also exacerbate the upward transfer of wealth and power that many societies have witnessed since the COVID-19 pandemic began.
Lyons warns that CBDCs, “if not deliberately and carefully constrained in advance by law,… have the potential to become even more than a technocratic central planner’s dream. They could represent the single greatest expansion of totalitarian power in history.”
Given how much is at stake, CBDCs are among the most important questions today’s societies could possibly grapple with — not only from a financial or business perspective but also from an ethical and legal standpoint. They should be under discussion in every parliament of every land, and every dinner table in every country in the world.
If central banks consider that there will no longer be black markets, they severely underestimate the resourcefullness of humans.
At Wukchumni’s suggestion, I have started reading: A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States.
When you really look at it, there may not be as much difference between counterfeit $$ and Central Bank emi$$ions. The black market was certainly a big part of 19th C. history and possibly our future?
I think I should your lead as you followed his.
The biggest banks seem to do the most money laundering, so if they’re supporting this it’s clear they’re not concerned about risks to that revenue stream.
Separately, calling these “Central Bank Digital Currencies” seems misleading. It’s just giving everyone a bank account at the Fed. The name doesn’t imply removing all cash from circulation, but it seems like that’s an assumption baked into the plans.
Funny, the author notes financial exclusion for presumably poor or un/under-banked people. But it also excludes people who just don’t want others spying on their transactions.
Barter, here we come.
Good point, Hickory. Duly amended.
Biden’s first nominee for treasury was Saule Omarova, who was sort of a point person or a feeler, floating the idea of everyone having an account at a central bank.
This particular piece calling her “far left” was a stretch but it’s telling that she was nominated, as the whole idea seems to be the goal of the international ruling class.
The American Bankers Association pushed back hard on her nomination.
From Wiki about the American Bankers Association:
“The American Bankers Association (ABA) is a Washington, D.C.-based trade association for the U.S. banking industry, founded in 1875. They lobby for banks of all sizes and charters, including community banks, regional and money center banks, savings associations, mutual savings banks, and trust companies. The average member bank having approximately $250 million in assets. ABA is considered the largest financial trade group in the United States.”
This group is comprised mostly of small community banks, savings associations, and trust companies. $250 million average in assets is a small bank by Wall St standards. Chase has ~$660 billion in assets and Citi has ~$800 billion in assets.
Yes, if I wanted a haircut and had to get CBDC to pay for it, I would make a deal with the hairdresser and make an exchange for something she needed; e.g., a second-hand toaster. Or better yet, I would cut and style my hair by myself (as I am doing right now, because covid!!)
Not just barter, but informal credit systems and local scrip could (and probably will) play a big role.
I keep $10-20 in $1 bills for the growing ranks of street people. What happens to them?
Or small gifts to children and grandchildren, who love cash.
Or the small farmers who staff farmers’ markets and would rather not pay a swipe fee.
And so on and so forth.
If the Post Office and other outlets are allowed to sell Postal Money Orders, people may put some of their ” digital” “currency” into Postal Money Orders and treat those as patriot money in the patriot markets ( “black markets”).
People may well do lots of tiny little fringe business in legacy Federal Reserve Notes and U S Mint coins. Till they are too worn out to use.
But CBDCs could be held at bay better if a hundred million people or so demanded that their employers or customers or whatever pay in real money and not bank-hostage digits. The Amish and the anti “Mark-Of-The-Beast” Christians may well show how to delay and deny efforts to make CBDCs the ” only” money allowed to exist.
Ditto…how could the Central Bank Be so blind.
Tell a prostitue male or female that they can not receive cash or computer digits for services or more than they need to make a living. “They can’t” says the global computer because the global computer wants to make certain that the customer isn’t spending unwisely. The prostitute will find a way to make a living. The John will find a way to collect. The customer will take a product for free, like now, or give away his kitchen sink to trade. Computers and humans don’t match because humans can’t be forced into perfection; which, imo, the wonderful part of being human are flaws.
This is going to suck. Thanks for staying on this beat, Nick. It’s a totalitarian nightmare
‘”A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption. Digital currencies can also help bring down costs of cross-border payments, for example when expatriate workers send earnings back to their families.””
i’m glad I’m old…but probably not quite old enough. Fink says money laundering and corruption when really it just makes sure the corruption and money laundering are done by the “right people” and gets rid of that pesky competition problem buggering all monopolists. And his alleged benefit is when a worker is forced by the disintegrated everyone for themselves world to go to another country to work, probably to help drive down wages in said foreign country which of course fink is very happy with, then the worker can send money “back to their families” who one assumes they never see…gee… that sounds great /s
What if someone hacks your bank account as a prank making creepy over the top purchases?
100 oranges, 22 large anchovie pizza’s, 10 cans of PENZOL, who secures your identity? Has it delivered to a dumpster.
I’d be curious to know what the banking industries view of this is writ large. Maybe some banks anticipate this, such as Chase bank closing more and more of their physical locations. Others will outright reap the benefit like Black Rock. Though I agree with the premise of the article, the banking industry wont fight for this unless they receive a benefit. Government isn’t known for being more efficient…
Also what other interest groups might be against this? With as much money moves in and out of offshore accounts by the ultra wealthy, what’s their play? I’m just trying to understand who benefits and who does not on the private side.
I still have no doubt like the article stated the government will push hard for this, but also have no doubt there will be loop holes, like every other system. I will be watching for that, for my own sake. I’d prefer not to be subject to random seizures, negative interest rates, bail-ins etc since I still am of the shrinking crowd that believes in having a 6-12 month cash buffer.
I see it coming in the 3rd world 1st, your talking any centralized power will love this. Plus a good portion of the 3rd world has already adopted digital payments (via cell phone) to avoid the hassle factor of being in the physical banking system (whom a good portion this was their 1st exposure to it anyways).
Very enlightening article, certainly other people resonate with this article and feel a change on the horizon. Hopefully this can be a bipartisan issue to rally against this program.
This could bring back gold….yeah. Dark money called black gold, not oil.
For those, of course, who want nothing to do with banks and bank controls. Seem like a bad idea. Middle class employeed people who believe in a 6-12 month cushion don’t cause inflation, economies to collapse, war investment, recessions, increase of interest rates. Generally, banks cause those problems.
Would the Fed become the center of extortion, censorship and cancellation?
We bemoan that the police can grab money found during a traffic stop. With this system the ‘authorities’ can take it at any time in any way they chose.
This drill was not run by the Fed but the Treasury’s Office of Foreign Assets Control, which is in charge of implementing US sanctions and anti-money-laundering programs. Various sources have said the Russia sanctions were launched without Fed participation or consent, which I believe because the Fed would have raised alarms about blowback.
My concern was with the central bank’s ability to control our wealth directly via the CBDC accounts with it.
You mention negative interest rates. Do you have anything to say about bail-ins?
Obviously this is a feature and not a bug, no?
Given the dystopian nature of these CBDCs, I fully expect them to be a major part of our future. Since when have the PTB not tried their darnedest, and usually succeeded, in making life worse for us little people?
Supposedly the big thing about blockchains is that they act as a massive decentralized ledger, and thus you do not need some kind of accountant keeping the books when A transfer payments to B (physical money is also a way to avoid the accountant, as a physical coin or note can’t be in two places at once without violating physics).
Best i can tell, the deal here is that CBDCs basically make the central bank the accountant of the economy (currently the task of the clearning houses and similar). Keep in mind that for many places the central bank was a late introduction, meant as a lender of last resort that was authorized by the government to produce notes etc as needed to keep the economy from experiencing revolving bank runs.
When you think about it, the modern banking system is several centuries of hacks that has piled up since protestantism allowed merchants to ignore Vatican views on usury.
And it is only very recently that the banks has no longer found themselves limited by the stacks of notes and coins in their vaults, as people rarely use such methods of payments any more (instead relying on either direct debit or short term credit).
For some reason we seem hell bent on sticking to commodity money, even as we decry certain elements of society as goldbugs (not to say there is anything special with gold, beyond that it does not rust when stored in some hole in the ground for decades).
Isn’t everything including government, science and even us several centuries of hacks?
“Gold…is money by its nature. Money is not, by its nature, gold…” Karl Marx
Thanks very much for this post. Important. Recommended reading.
You could book-end this excellent piece with two sentences with one near the beginning and one near the end. A little while in it says ‘Three CBDCs have already gone fully live in the past two years: the so-called DCash in the Eastern Caribbean, the Sand Dollar in the Bahamas and the eNaira in Nigeria’. Yeah, so one place is one of the infamous Treasure Islands and the other is a place that has a surplus of Princes needing money. This is not a confidence builder for CBDCs here. Then near the end it says that Harvard economist Kenneth Rogoff dreams of such a thing being set up. Sorry but I classify the presence of his name with Larry Simmers as a warning sign. Excuse me for asking here but if this was set up, wouldn’t it imply that every person using it have both a bank account and a mobile phone to do transactions with? Yves has mentioned previously a coupla times the huge number of Americans who are ‘unbanked’ and can only assume that not every person will have a mobile either – a notoriously insecure platform. I suppose that those people will just evolve a trading service for goods and services in their own economy. Ironically an economy based on real world things.
The Eastern Caribbean DCash platform has already hit one snag, apparently.
It’s out of my wheelhouse but I do know Bit Coin uses a ton of Energy for its creating activities, is it the same with others similar?
And how does that figure into the Climate Crises exacerbated by Energy Production?
The last bit seems like so much an afterthought when discussing Digital Currency
Bitcoin gets “created” when a mining computer “solves” an algorithm. The amount of “solves” it takes to “create” the next bitcoin grows exponentially until at some pre-defined number (I can’t be bothered to google it) no more bitcoins are able to be mined. In reality, this is a numbers game of how many “answers” can you guess how quickly. Those with the biggest computer arrays running 24/7 have the best chance to get the next bitcoin that is created. All those computers take power to run. As the coins take more and more calculations to get, the computer arrays grow larger and larger.
Central banks have no need create some energy wasting game in order to create money, so have no need to run all those wasteful computer setups. They can just change the numbers in your account directly. The bigger issue, as Yves has pointed out many times, is that if money is purely digital (no cash), you have to have an electronic device and a bank account in order to use money at all. Blockchain is just the buzzword of the day. A Central Bank with a central account ledger has no need for blockchain. Blockchain also has the flaw that it is incredibly slow (I think I remember reading somewhere it can do only 7 transactions per second), but that might just be a Bitcoin-only problem.
agree that central banks, do not have to competitively solve mathematical problems, which will resolve the energy consumption conundrum
however, some form of authorized banking agent (middle men) will have to be introduced to maintain the state of the public ledger is it not ?
Good summary, AJ. Adding: the maximum number of Bitcoin is 21 million, of which close to 19 million have already been mined. I’m not sure difficulty goes up “exponentially”, but this rather depends on an algorithm. Probably they will never all be mined, though. Also, this brute force strategy of looking for hashes that match is called “proof of work”, and some other coins use a more efficient mining strategy called “proof of stake”. The speed issue does seem to be specific to Bitcoin, and there has been a fair amount of software development done to ameliorate that. It’s not baked in, and there are other coins that have better transaction speed. The takeaway, though, as AJ says, is that CBs wouldn’t need to do any of this.
Instead of leaving the topic as “And Probably Not for the Better”, the next article in the series could be about the safeguards that must be put in place in ant legislation that authorized the Fed to provide this service.
The Fed should be prevented from meddling in your financial choices (digital currency neutrality). Your financial transactions should be protected by privacy requirements. Any breach of that privacy by other government agencies should require a court order.
We would need laws re-inforcing laws that already supposedly exist forcing people to recognize U S Mint coins and Federal Reserve Notes as legal tender for all debts public and private.
We need such laws before the upper class buys laws saying that any pay-ee can refuse FedRes notes or coins any time they like.
There can be no sufficient safeguards against central banks meddling, since this is the whole purpose of this, that central banks control individuals’ money.
However, I’m wondering how this fits in with what looks like a possible energy crunch arriving soon, both due to Ukraine and since global warming means that fossil fuels are no longer viable as a means of energy production, and yet there is insufficient renewabke capacity. How will this system work in a world of electrical blackouts? This is also a problem with the current banking system.
How is it working in Nigeria currently?
My feeling is that it will be a system for the elites initially. I imagine the unbanked sector of the economy will become much larger, and they will use an alternative system if this ever comes to be.
Central Banks used to regulate financial institutions and didn’t do a great job. So let’s put them in charge of regulating the public.
While I agree that CBDCs will probably be a largely bad development over the coming years, I don’t think we should discount their long term potential for social democratic (and dare I say socialist) economic regimes. Think of how much they could simplify public banking schemes, or even planned economies.
Think also how easy they make new, centrally controlled redlining schemes, down to the individual person level.
They could be used to make any social engineering endeavour more effective. What exactly those endeavours are is fundamentally a political question. I certainly have no faith that the current political regime will pursue anything positive.
Don’t blame the tool, blame the madman trying to beat you to death with it.
Don’t blame the tool is a logical fallacy in todays modern world when you understand by the ease at which we cause our own destruction with our innovations.
When a madman is the person who invents the tool, and advocates for use of the tool, blame the tool and blame the madman too.
And then; (ominous bass line) A Solar flare wipes the slate…
was thinking more like some PMC idiot clicks on an enlarge your … ad and the black hat encrypts the whole thing. But wait, we have no way of paying the ransom.
So if I understand all this: The Fed could in theory start allowing people to open bank accounts right now. They still have the power of digital money creation in the current system.
The motivation for coupling this with a “digital currency” is twofold:
1. It’s essentially forced instead of optional because you need the base account with the central bank in order to be a part of the ledger for the new currency. Commercial banks would offer services on top of this base account but the central bank still owns the ledger.
2. The ledger itself holds the most power if it’s the only option. If there is a “private” option then people who didn’t want the a quasi-governmental bank reading all their payments could opt out (and those are precisely the people they want to capture).
And also the requirement for a digital ID.
Imagine Microsoft being part of the consortium issuing your “secure” digital ID
With microsoft involved I imagine they would find it necessary to keep issuing periodic updates that would completely break random integral functions of the system, resulting in large segments of the population being absolutely unable to access their account/funds until some kind of patch could be rolled out a week or more later…
Yeah. It really does look to me as though
Central Bank Digital Currency
is exactly the same as
Post Office Savings Bank with Debit Cards.
I don’t recall being asked to vote for this.
You will own nothing, and for that you will be forever grateful.
Okay. Got it.
Nick, thanks for supplying this important post. I finally begin to understand why CBs and their cheerleaders are so in love with the idea of digital currency and eventual elimination of physical cash. Many working people I see at the grocery store pay only in cash — despite the risk of carrying bills around, it’s still something they can physically hold and keep. There’s no guarantee upon logging into a bank account that your savings will show up.
And Ken Rogoff in his typical arch manner argues that eliminating anything larger than a ten spot will both curb organized crime and keep institutional investors from hoarding cash if and when negative interest rates are imposed — ignoring the large part of the population that trust neither banks nor the government, nor Harvard-dwelling neoclassical economists for that matter.
RE: “Many working people I see at the grocery store pay only in cash.”
A family member, who shops at Costco remarked on this, i.e., people hauling out wads of cash, $200 – $300, at the register. And, the ever-present and growing, requests for cash payments by small business people. The latter because: Those billionaires pay $0 taxes and damned if I’m going to be a chump and declare all my income and get taxed on it.
Plus, have noticed that more and more gas stations are now giving a ten cent per gallon discount for cash payments.
Paying cash saves gas stations credit card transaction fees. Most credit cards these days give rebates on purchases. For gas it is usually 1 or 2 percent. At $5 per gallon a 2% rebate = 10 cents, so it’s often a wash for the customer.
Discounts for cash are because retailers get swiped charges/fees from 2% to 4% –
I would venture a guess that some entity would be craving (and getting) a digital vig on every transaction on planet earth
Sorry -posted before seeing above post
Went to a local restaurant recently whose owner had been busted a few years back for non-payment of a large amount of state taxes. They had a “cash only” sign up when we went in, and I joked with the bartender that that ought to keep out the riff-raff. And they seriously enforced it – guy next to us tried paying with a card and they refused it and sent him up the street to an ATM.
In the middle of the evening, a manager or maybe one of the owners, not really sure, came and emptied out the register, put everything into a locked cash bag and then presumably into a safe of left the premises with it. My guess would be it for for exactly the reason you described above.
Given what we are seeing in international affairs the digital currencies will be the moment when anyone can be monetarily frozen from society, very much like Russian assets, just by the stroke of a keyboard.
Bankrupted even. Those “assets” of yours? Never existed..
PM Trudeau also recently did a test run.
Test results still pending.
But the chyna plantation has this already rolled out on its workers. Social credit…
Only 99million are ccp members but they control the rest, 1400 million. 18pc of world population. Life in a company town, with company scrip, forever. Horrible.
The g20 are prompted by vanguard, blackrock, and WEF oligarchs to legalise digital scrip to fit digital EGS cult population management dogma…
Did everyone note how the top 100 global corps closed up and dropped business in Russia this month… completely unilaterally. A sovereign government did not command that action. In a historic first, the banking godfathers stepped out into daylight from their Palace of Puppets and attacked a whole economy, in a bigger version of what PM Trudoo did to populists in Canada.
Prediction – re-education camps coming soon. All the build back better (cattleyarders) do it. Always. For The Greater Good.
1) I could see this fomenting secessionist movements in the more libertarian states.
2) You wonder just how granular the thinking is on this in terms of the consequences for the citizenry. Here is one shallow (not a lot money in the grand scheme) but broad edge case: coin-operated laundry machines in apartment complexes. Just imagine the cost of having all the coin modules in these machines replaced with far more expensive digital counterparts requiring internet or wi-fi connectivity. Cost for the landlord = rent hike.
Of course, 2) assumes the absolute elimination of physical currency, which may not be implied by the mere existence of a digital currency.
Hamstak, our condo building replaced the coin-operated washing machines with card readers a few years ago. Last year, the laundry company that owns and maintains the equipment, installed readers that required use of cell phones and a mini-revolt ensued. The condo population is pretty evenly divided between young single techies whose cell phones are implanted, and old retired codgers, and the old codgers (here Eclair raises her hand) refused to comply. The card readers returned.
Interesting, thanks for that — I should not be surprised. I imagine one difference might be between institutionally-owned and individually-owned complexes. I live in a single building, 7-unit complex owned by an individual. The companies providing the digital readers likely target much larger concerns since that is where the money is.
Roughly the same thing in my co-op. The codgers didn’t object to the fobs (=card readers), but when the laundry company required payment by credit or debit card, either over the internet or by swiping a machine in the laundry room, there was a maxi-revolt (our demographic skews over-65) demanding the ability to pay in cash and receive change. The rebels won.
I am really confused here, and probably suffering from acute cognitive dissonance.
Why are post office banking services and/or individual accounts at the Fed proposed as a benefit, while CBDCs are considered pernicious (aside from the signal sent by Rogoff favoring them)?
If this system can actually prevent tax evasion and money laundering, how does that not act against wealth inequality? Also, how does the elimination of multiple layers of rent seeking in the current money transfer system not benefit all users? Is simplicity intrinsically better than complexity?
We are already being raped and pillage by various actors in the private financial sectors. Would this system eliminate the multiple layers of rent extraction we experience whenever we use a credit card or overdraw our checking account, for example?
We are already subject to confiscation of cash by civil seizure by various entities, to “freezing” of assets for suspected “socially undesirable” spending, etc. Much of this activity is perpetrated by local, state and private entities operating under a plethora of laws, regulations and privileges. Even the possession of a significant amount of cash, for whatever reason, can trigger seizure, and the transfer of large sums under the current transfer system can trigger investigation by various authorities. I am not sure that the digital system is significantly more Orwellian than the current one. At least, CBDCs might have prevented some shenanigans as the purchase of Rep. Fortenberry (R, NE) by Gilbert Chagoury?
Would there be any need for banks, or for the Fed under this system? Would it not be simpler for the treasury to be the participating entity?
Is there any consensus or even a “party line” among NCers as to the best (most beneficial or least obnoxious) monetary system to replace the current one?
Why are post office banking services and/or individual accounts at the Fed proposed as a benefit, while CBDCs are considered pernicious
PO Savings banks and individual accounts currently do not require a universal ‘digital ID’.
A central bank CBDC requires everyone have a ‘digital ID’. Search on ‘digital ID’ for more information.
(Some guy said something about ‘absolute power corrupts absolutely.)
(This NC’er doesn’t see any need to replace the current monetary system – clean it up and regulate it ‘yes’, replace it ‘no’. That’s throwing out the babay with the bathwater, imo.)
Thank you, Flora.
I guess I am thinking of the current monetary system as the “ship of Theseus.” If cleaning up and regulating involves replacing all the parts, one at a time…
What would be an acceptably secure form of ID for accessing an account at the Post Office or the Fed? A “real ID” drivers license, for example?
And I well recall the introduction of the “new franc” (1 NF : 100 old francs) as I was traveling in France in 1960. Not a good result for hoarders of cash, nor was the fact that I am currently a $100 trillionaire in Zimbabwe dollars.
I think the question of absolute power and absolute corruption has already been settled in multiple instantiations over the years.
The quote is from Lord Acton, who was, among other things, sympathetic to the Confederate cause and States Rights in general (another source of confusion to me re 420 issues vs. reproductive freedom, for example).
Is that who said it? It’s still true.
Yes, already settled.
Can anyone see that this CBDC idea is simply a way for Our Billionaire Overlords to extend Rent Extraction to the Underground Economy? The Underground Economy is enormous and Our Billionaire Overlords must lie awake nights fretting about their inability to squeeze rents out of it.
However, participants in the micro-entrepreneurial Underground Economy are the very people who voted the American Caudillo into office in 2016. They will lose their minds about letting go of the illusion that they can hide their hustles from the big banks and the government.
The Gray Lady is so puzzled that “hispanics” and other groups excluded from the Wall Street-K Street axis are deserting the Democrats in droves. Just you wait…
I think many Hispanics and many Afro Americans have always been more aligned with the Rupublicans, especially those that are small businesspeople. The Democratic party seems to make an (imo foolish) assumption that non-caucasian ethnic groups are its natural constituency.
They should come to Tucson. I have met many Republicans of color here.
As usual, these types of ‘forward looking’ policy developments were examined , illustrated, and commented on long ago, being freely available for anyone with the available time and interest to thoughfully examine and consider. And as usual, the spillovers in the form of far reaching negative social impacts are either minimized, or rarely given careful and thorough considertaion by all those entities that are able to maximize their own self interest in the form of outsized pecuniary advantage and accumulation (In the form of apparent overt conflicts of interest, for example, ” Also firmly on board is the world’s largest asset manager, BlackRock, which helps many of the world’s largest central banks, including the Federal Reserve and the ECB, manage their assets while obviously keeping all potential conflicts of interests at bay. The fund was the largest beneficiary of the Federal Reserve’s bailout of exchange-traded funds during the market rout of Spring 2020.”) as a direct consequence of implementing those same policies.
In any case, it is further carefully noted that what was observed so long ago is still directly applicable to the current situation, as the long standing goals apparently remain firmly in place, one of which may be the absolute power to control and manipulate populations financially using a technologically sophisticated panoptic gaze:
“The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. . . . Each central bank, . . . sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world. . . . The history of the last century shows, as we shall see later, that the advice given to governments by bankers, like the advice they gave to industrialists, was consistently good for bankers, but was often disastrous for governments, businessmen, and the people generally.”
Packaging and selling the idea (CBDC) to the public belongs to PR firms and the MSM and has been vigorously marketed for some time now. One expects that shortly it will be reported that “consumers” and the “public” demand such changes. It is a fairly safe to assume that the science of manipulating, controlling, and directing the “public” mind has undergone many refinements since the time of Bernays and Lippman. Such that:
“Most people are walking in their sleep; turn them around, start them in the opposite direction, and they wouldn’t even know the difference.”
“Most people are walking in their sleep; turn them around, start them in the opposite direction, and they wouldn’t even know the difference.”
Love it. Whose quote, please?
From a footnote that in its entirety states that:
3. “A beautiful and moving literary expression of the idea that people are only half-awake is found in Thornton Wilder’s play, Our Town. Al Hubbard one of the pioneer workers with LSD-25, expressed this idea very well by the informal remark, “Most people are walking in their sleep; turn them around, start them in the opposite direction, and they wouldn’t even know the difference.””
That is found in an essay, that is worth is weight in intellectual gold (in my lowly opinion), by Joe K. Adams, “PSYCHOSIS: “Experimental” and Real”; which, can be accessed freely from multiple sites on the internet, for example:
Is that satisfactory?
Who wrote the lengthy quote in the middle of your post?
I think Carroll Quigley.
This kind of elite wishful thinking reminds me of the final scene in doctor Strangelove. The most powerful men in the world in the war room planning their erotic post apocalyptic lives without realizing that the doomsday device has already been triggered.
I agree with Adam Curtis – the world has become too complex for the elites to control let alone manage, and so all that is left is for them to manage your understanding of reality. Throw CBDC onto the pile of flying cars and renewable resources that mitigate climate change – just another soothing dream the elites tell themselves.
Technocratic governments always seem to assume they can control everything.
“No promises or trust are necessary; every transaction is permanently recorded on a digital cryptographic ledger in real time—a bit like Bitcoin, but exquisitely centralized rather than distributed…”
But there would be “promises” or “trusts” involved in any type of transaction. It’s the essence of any transaction. So what are the obscured promises and trusts?
I don’t trust alleged “crypto”. And “Digitally secure” is a non-sequitur.
Additionally, I agree with perception that it shifts all the risk in transactions to the people. One of the reasons people agree to assorted fees from banks is the risk that they take on.
And is digital “currency” FDIC insured?
But marketers working overtime has people thinking moving the storage of files from one location to another bigger location is somehow worthy of awe because they come up with a clever name called “the cloud.”
Digital cryptographic ledger – like bitcoin.
Blockchains are hackable. Yes, they are. Ignore the PR you’ve read about the unhackable quality of blockchain. From MIT:
Once hailed as unhackable, blockchains are now getting hacked.
More and more security holes are appearing in cryptocurrency and smart contract platforms, and some are fundamental to the way they were built.
In a “democracy” the “people” ought to be able to put the kibosh on this very bad idea and kill it in its infancy.
In my RobertC March 15, 2022 at 9:27 am post I asserted that Biden made:
I have read any number of articles on those two questions and wandered into the wilderness.
Yves and Nick — I, and I believe many other readers enjoying and informed by Naked Capitalism, would greatly appreciate a 2-3 page article addressing those two questions.
Many many thanks.
When you can’t get to your facebook account for a few hours, it is newsworthy event. It is doubtfull that a hostile power would target facebook, but the CBDC? What about a large solar flair – every now and then there are doubts if the electric grid will be affected / survive? What about EMP above East Coast? What about the proven fact that bitcoin can disappear and also stolen? I mean who wants to make things even more fragile then they are already?
Is the current system immune to these problems? It’s not clear to me that even physical cash would retain any value in the face of an event such as you are describing.
If there is no limit to negative interest rates and no place to hide if you want to avoid them it implies that everything – all digital assets – will be considered credit and when the value of a digital assets is adjusted by negative interest rates it all evens out in the total volume of digital assets afloat among users. A safety valve for preventing an inflated currency that would otherwise require draconian, self-defeating austerity and high interest rates. So generous digital credit can be offset in a timely manner. Curiously, anything digital is almost by definition infinite as well. So it approaches a system, exclusively, of credit. No one based on debt. That’s an improvement. Maybe.
Susan, if I’m not too late, please explain this further –
“So it approaches a system, exclusively, of credit. No one based on debt.”
I’ve been dreaming of a system of credit without debt. Without the debt which we practice in order to offer credit – through commercial banks, using sovereign money and charging sometimes usurious interest for the privilege of taking out credit. If credit is given directly through a system of CBDC transfers it could not only fund small bank accounts but also eliminate the “debt” step (going through a bank for credit) and I think it was that intermediate step which made the whole system dysfunctional. In order to keep the dollar strong, we used high interest rates. And when we tried to use negative rates the banks went apoplectic – it took away their best opportunity to make money. So negative rates were problematic. Whereas, if I’m reading this even close to clearly, having the CB distribute digital money via universal credit accounts gives inflation-control directly to the CB at a grassroots level. No “big banks” deciding to raise interest rates, etc. And the best way to control inflation is not higher interest rates (which even cause more inflation) but negative interest rates. When inflated money (too few goods and assets to purchase) cannot make interest on it’s own use (debt), and the money itself is deflated gradually across the board with negative rates, it is better for the value of the dollar as well as eliminating the capricious ups and downs of higher interest rates (that accomplish very little). That negative interest from the Fed will serve to steady the dollar. And maybe the commercial banks will see the value of it when they make industrial loans. Who knows where this could go? They could claim part of the gain on the money or something. It sounds a little like sharia (sp?) law. I think we are getting very close to making banks utilities.
Thank you Susan, I’ll be back after some sleep when my head will be a little clearer.
Moderator(s), thank you for your intervention. I was out of order, no excuses. Lessons learned, it won’t happen again.
To comment is a privilage, not a right.
This is like the debit cards used for food stamps. Somebody, at the demand of someone, takes or adds funds in your card, and not only all your purchases’ when, where, and what items are shown to your benefits administrator, what you can buy with it is finely controlled.
Okay, this all seems like a bid for authoritarian or totalitarian control of the population, but not only is a nightmare for the general population, it will be a nightmare for everyone; the ability of the government at all levels to actually govern in the United States has been declining while its power has been increasing, which makes it act like a drunk giant breaking things like individuals, countries, and the whole world. Then add the breakdown of law and order in the country with its increasing focus on raw power for getting wealth and power in the short term without regards to even the intermediate term’s consequences. Want to prevent abortions, or guns, impose Identity Politics on dissenters, or control dissenters and destroy their organizations, which can include opposing political parties? Here is an extremely useful tool.
Then there is the non-physical nature of this digital currency. I think of the 1989 Loma Prieta Earthquake where it was a cash only world and there were no working ATMs for a week. Destroying cash as well as the underground economy means destroying redundancy. More efficiency and control for greater fragility with the vast American environment of earthquakes, floods, tornadoes, hurricanes, and who knows what else guaranteeing that whole states will have a collapsed economy for days or weeks. If we had competent government including FEMA (Federal Emergency Management Agency) it might be okay, but looking at Covid (and Katrina) we do not.
Here is one of the Global Predators (Dr. Peter Breggin), Prime Injector Trudeau expressing his admiration for Communist Dictatorship:
And the Schwabber has a video out bragging about “penetrating” half the CDN Cabinet.
Meanwhile, Canadians breathlessly await the start of the hockey playoffs as their rights are under assault and they will get whacked digitally. Go Leafs Go!
The Trudeau Liberals just made an arrangement with the NDP to deliver (let’s wait until we get the concrete material benefits) universal dental care and pharmacare in addition to the national daycare initiative. While I understand rational skepticism, what are you proposing as an alternative, Maritimer? Presumably not the Conservatives, aka “the Oil Party”
One practical question. How does this work if there is no electricity, internet, phone service, etc. Ever notice people lined up at ATMs to get cash ahead of a big storm or hurricane for example?
Or what about people like my mother who won’t get a smart phone due to her age? She pays for everything with cash. (OK, that’s two questions.)
I still use “old fashion” methods like paper (oh, the horror) checks, snail mail, paper cash bills, and metal coins. You wouldn’t believe the relief I see on the faces of both young folk and old. This whole block coin, digital currency, etc. raises my caution/ripoff meter into the ultra red zone. And, I am no finance expert, just very cautious.
Even if CBDC can accurately identify money-launderers and tax cheats, my fear is that this will be used against “little people”, not the crooks. Our government already turns a blind eye to money-laundering by levying hand-slap fines, writes generous loopholes into law when big money needs a pass.
We don’t go after the tax cheats now even though we know the games they play reporting earnings. We have billions in unpaid taxes. We don’t collect them.
We don’t enforce anti-trust laws; we help the monopolists.
Identifying is all well and good but is a moot point without enforcement. I’d bet money they have no plans to enforce any laws against big players no matter how many crimes the new CBDC’s identify.
I kept reading the article and thinking: “They must have run the April Fools day article early.”
This article rather glosses over the positive argument for CBDC: “no longer require middlemen such as banks”.
If you say this is a way of nationalizing the monopoly of debt creation then it all sounds much more progressive, no?
We would have a much more flexible tax regime – easily shift rates of income tax depending on achieved full employment, tax fuel more or less depending on supply issues, tax property bubbles easier etc.
The central bank could provide cheap loans for house buyers or business formation.
Debt issuance in toto could be not for profit.
Clean energy investments all at zero interest rates, anyone?
Stopping tax evasion and money laundering would be great!
You really want all debt issuance and hence control of the economy to remain in the hands of Wall St?
I would have thought a MMT audience would be all for a CBDC and drop the libertarian paranoia. At least a central bank is democratically elected and it is clear we are not solving the climate change “investment gap” without big government and big banking.
“At least a central bank is democratically elected”
Central banks are part of the government, and most governments are elected.
The alternative to CBDC is what you have now, control by the private sector on Wall St.
Soon, you will be able to compare the US dollar monetary system to an alternative commodity and CBDC based system. We’ll see which one is more suited to the 21st century.
No one actually understands money or wealth.
This could be a disaster.
Neoclassical economics is a pseudo economics; it’s more about hiding the discoveries of the classical economists than telling you how an economy actually works.
Any serious attempt to study the capitalist system always reveals the same inconvenient truth.
Many at the top don’t create any wealth.
That’s the problem.
Confusing making money and creating wealth is the solution.
Some pseudo economics was developed to perform this task, neoclassical economics.
Rentiers make money, they don’t create wealth.
Rentier activity in the economy has been hidden by confusing making money with creating wealth.
The neoclassical economist doesn’t know what real wealth is which does lead to problems.
Neoclassical economists have always excelled in creating wealth of the evaporating kind.
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth.
1929 – Wakey, wakey
The wealth evaporation event of 1929 finally brought them to their senses.
They needed to find out what real wealth was.
This is when they invented GDP.
Real wealth creation involves real work, producing new goods and services in the economy.
That’s where the real wealth in the economy lies.
It was only after a thorough investigation into 2008 that I realised I had been confused about money and wealth.
Rolling neoliberalism out globally has been a great opportunity to find out how the monetary system actually works.
The financial crises are the time when the big advances can be made, and there have been plenty of those. These are the keys to unlock the secrets of the monetary system.
The Japanese financial crisis in 1991 was a very significant key.
Richard Werner and Richard Koo turned the key.
They both opened different doors into understanding what had happened.
Richard Werner looked into what had happened to cause the financial crisis.
Richard Koo looked into what had happened after the financial crisis.
It was Richard Werner that proved banks create money, and this got central banks to reveal the truth starting in 2014.
By the time I started in 2008 a lot of the doors were already open, and I could go on to open a few more.
No one else seems to have followed this path, but it seemed like the next logical step to me.
If banks create money out of nothing, which they do.
What is real wealth?
This took a while.
It took them a long time to disentangle the hopelessly confused thinking of neoclassical economics in the 1930s.
This is when they invented GDP.
The real wealth creation in the economy is measured by GDP.
Real wealth creation involves real work, producing new goods and services in the economy.
That’s where the real wealth in the economy lies.
There is general confusion about money and wealth.
Once you have got these straight things become a lot clearer.
What is the relationship between money and wealth?
It is easier to see when it all goes wrong.
Weimar Germany and Zimbabwe were never short of money.
Weimar Germany and Zimbabwe had created far too much money compared to the goods and services available within the economy causing hyper-inflation.
States can just create money, and the last thing you want is too much of the damn stuff in your economy.
They had made so much money it lost nearly all its value, and they needed wheelbarrows of the stuff to buy anything.
Money has no intrinsic value; it comes from what it can buy.
Central bankers actually look at the money supply, and expect it to rise in line with the new goods and services in the economy, as it grows. More goods and services in the economy require more money in the economy.
Paul Ryan was a typically confused neoliberal and Alan Greenspan had to put him straight.
Paul Ryan was worried about how the Government would pay for pensions.
Alan Greenspan told Paul Ryan the Government can create all the money it wants, there is no need to save for pensions.
What matters is whether the goods and services are there for them to buy with that money.
That’s where the real wealth in the economy lies and it’s measured by GDP.
Money is just an instrument to facilitate transactions in the economy, it comes out of nothing.
It you create too much of it, it becomes worth nothing.
We are confusing what money is at the individual level and state level.
The central bankers don’t understand the monetary system.
They don’t know what they are doing.
Rolling neoliberalism out globally has been a great opportunity to find out how the monetary system actually works.
The financial crises are the time when the big advances can be made, and there have been plenty of those. These are the keys to unlock the secrets of the monetary system.
When you understand the monetary system you realise there should be no financial crises.
The central banks have a way to go yet.
When you understand the monetary system, you can achieve financial stability.
There should be no financial crises.
The financial crises are actually the time when the big advances can be made, and they did it before after 1929
Financial stability arrived in the Keynesian era and was locked into the regulations of the time.
“This Time is Different” by Reinhart and Rogoff has a graph showing the same thing (Figure 13.1 – The proportion of countries with banking crises, 1900-2008).
We removed the regulations, and put central bankers in charge, and the financial crises have come back.
The central bankers are desperately trying to rediscover the secrets of financial stability.
We have worked it out again, and are waiting to be consulted.
When the last tree has been cut down,
the last fish caught,
the last river poisoned,
only then will the banker man realise that he cannot eat digital money
Many of the flaws in this utopian idea of a digital currency have been exposed in the above essay and comments, particularly from pebird, TomFinn and Mikel. Would an updated Pegasus be a problem? Wish that C. Wright Mills, Kurt Vonnegut, Gore Vidal, George Orwell and Walker Percy were still with us for a round table discussion.
Lord knows I have sufficient difficulty keeping up with my own finances let alone the movement of money at an international level but two questions I have regarding this proposition – one big and one little though in my view the more important – are:
1. Is this central bank going to employ the staff to deal with mortgage applications, applications for business loans, approval of overdrafts – staff with the necessary local knowledge and, knowledge gained over time of the actual people and/or small local businesses involved?
2. What about the cake stalls for local cats homes, selling cookies outside the supermarket to fund a local kids soccer team’s outing to a State or County competition? Are these, too, to open accounts at the Central Bank, get hold of all the electronics to enable payment and pay the associated fees?
If these CBDCs are on a blockchain, who will control the cryptographic keys? Me or the central bank? I’d research this but too many other priorities.
Blockchain is a highly idiosyncratic and inefficient database, justified only to implement trustless two-party digital transactions on a decentralized network. CBs aren’t interested in that. It takes them out of the loop and puts them out of business. I’m baffled when I see people talk about blockchain in the context of CDBCs.
The much favoured “Austrian” school of economics will save the world?
Haven’t seen a well-defined concept that is called CBDC (and I’ve looked). For now, I’m assuming it represents nationalization and consolidation of banking and payment processing, built on the same old (but reliable) tech used today. That implies so much buy-in and disruption that you’d have to wield totalitarian power just to push it through (a la China).
CBDC is not new tech, it is a shiny new word for an old-fashioned power grab.