Hey Brett, excellent article, thank you. Do you have any further material or links on how I can imagine accessing CBDCs as a consumer? What role will the payment networks play? Since the L2 (deposits, savings, payments) is currently completely provided for by private companies (at least in the U.S. / Europe), does this mean that the gov needs to recreate the L2 but on L1? Thanks!
Feb 13, 2023·edited Feb 13, 2023Liked by Brett Scott
Thanks, I enyoed the read! But I don‘t really get your hot take to be honest: Why would central banks see their layer 1 influence in danger? Physical cash may be less used, but this means these transactions just shifted to the layer 1 electronic ledger controlled by the central bank…
They could increase their influence with CDBC because they could provide interest (or charge negative interest) without layer 2 players grabbing some margin, but thats not connected to the physical cash usage declining.
My hot take: CDBC will not happen because no central bank has the capacity to engage in all the KYC & regulation tasks the layer 2 players deal with when everyone wants to open accounts with them.
One factual question I have arising from undertaking Meditation 3: What allows a bank to take part in the Credit Creation of Money and thus gain that power you speak of to direct the economy?
Could I declare myself a bank and just legally do this? I assume not; you hint that the state would need to authorise such?
Can/do *all* institutions that call themselves banks do this? I suspect not..?
Is it only banks in the 'central bank digital currency' club that take part in this..? If so, why?
Mar 18, 2023·edited Mar 18, 2023Liked by Brett Scott
Hey Bret! I've now read a few of your articles carefuly and I found them very insightful. I lean libertarian, though not in its extreme anarchist Citadel/seasteading form (in fact I find these visions only slightly less dystopian than a totalitarian world government). So I naturally sympathize with the ideas behind Bitcoin like privacy, decentralization and theoretical unseizability as proposed by people like Alex Gladstein, Troy Cross or Jeff Booth. However, I have some doubts regarding its long term security budget as well as its future acceptance, specially because it's really just a token (21 million, why not 20, 19 or 50, 69, etc.?). What do you think about a currency really pegged to energy (Bitcoin is only very loosely pegged to it) which would still (most likely) be deflationary, but would behave much more naturally (it would be gradual rather than sudden) and have a real connection to the way we consume the ressources of our planet. Currently our inflationary fiat system makes us need an exponential, unsustainable growth, which is mostly an effect of financialization of the economy. I'm no Malthusian, but also I don't think the current state of things is sustainable. What is your opinion on this?
"the power of their Layer 2 digital chips depends on the public believing they can be redeemed for state money, "
That state money's merit to the public consists, as to the background root cause, of solely its power to pay taxes, Mosler would say. As such, no one cares about Moneymatic machines, now do they--not for money's merit as "state money," that is. Comments?
I’m with except I’m not totally convinced by this (summarised in your comment above):
“ The main issue is about the public losing confidence in Layer 2 digital money in the context of a decline in cash, which in turn is spurring the debates about a 'replacement' in the form of CBDC”
I hear of people losing faith in layer one due to there being too much money. But I don’t follow how an absence of physical cash in life will lead people to question the legitimacy of layer 2. After all, we rely on it more than ever now. And the banks are insured by the government so money that disappears in one is promised to be reappeared in another.
The completion a few weeks ago of the last round of re-selling of UK Bonds purchased under QE / LSAP indicates a loss of £150bn between purchase price and re-sale price. This ultimately represents a transfer from the taxpayer to the private financial sector.
The underlying instability of a monetary system based on private debt to commercial banks at a time when the public is resistant to taking on more debt was not addressed post-2008, therefore will happen again.
Sure the banks are only too happy to take handouts from the state ad-infinitum in order to maintain their 'too-big-to-fail' position at the heart of the monetary system.
The point of CBDC is that it provides a tool for government to reimburse losses to account holders with newly created CBDC so they can let private banks go to the wall when they go bankrupt. Since every citizen and business has a unique identifier (tax no. or NI number in the UK) this can happen without the active participation of said person or business. Furthermore, should the holder of CBDC then choose to risk that money by transferring it to a commercial bank, The Central Bank would be under no obligation to issue a second round of reimbursements, and the Consumer Credit Guarantee Scheme could be wound up. Perhaps funds held in 'building society' type institutions, i.e. true intermediaries, could be treated more favourably.
Issuance and control of the money supply should be as much a function of the state as defence of the realm. To have either of these functions in private hands is an invitation to treason.
Concerns around resulting excessive 'state-power' should be addressed as a matter of democracy-deficit, rather than one of monetary policy.
Imaginary's eh? Physician heal thyself. I wonder if you're suffering the symptom of most "experts" in that by focusing on your speciality you lose sight of some of the bigger picture? (although, as evidenced here and throughout your work, you do introduce nuance and uncertainty and introspection.) Please take a peek inside my "imaginary" (in case you missed it, from August 2021) https://thephilosophicalsalon.com/a-self-fulfilling-prophecy-systemic-collapse-and-pandemic-simulation/
The answer is to have commercial banks act as Agents of the Central Bank. Each bank would run a subsidiary ledger of the Central Bank, This ledger would record loans made by the bank in CBDC on ons side and the amount of CBDC held by its customers on the other. Existing loans and deposits could be switched overnight from the bank's books to the Central Bank subsidiary ledger. The banks would still earn interest on the loans they make on behalf of the Central Bank and still manage the payments system. The only difference is that from then on, no one could lose their deposit if a bank went belly up, as their CBDC would not be a liability of the bank, but of the Central Bank. The Central Bank would have no right to know anything about individual accounts. The banks would only report the total of their ledger to the Central Bank. Access to each account by anyone other then the bank and the account holder would require due process, as now. Also, within limits, CBDC could be downloaded to a phone or electronic card to be paid from device to device to retain anonymity, just like paper money. This would also limit risk due to a system outage.
I have not yet read part 2. As a crypto trader, my first thought is: it sounds a bit naive. Offering digital central bank money instead of cash clearly has no benefits for citizens. The advantage is exclusively on the side of the central bank ( and private companies acting on behalf of the central bank), which can control all aspects of the digital wallet at will. It's like giving my private keys and all personal data to an administrator who is known to be untrustworthy.
For this civilian, this is a quite brilliant read. Thank you. I have a request for Part 2. Would it be possible to add a few lines about where a member of the ecological class might stand on the cash question? or should? https://www.buecherchorb.ch/detail/ISBN-9781509555062/Latour-Bruno/On-the-Emergence-of-an-Ecological-Class
This is a thoughtful, illuminating article. Thank you!
Amazing. Thank you very much!
Holy shit, this is so good.
Would love to see your meditation ideas in the scope of western world and US dollar.
World is already transacting in dollar and crypto is as well.
Feels like if CBDC exists, it will probably come in a form of some privacy enabled public ledger.
^If you disagree would love to see what frameworks I should have in order to alter this belief.
Hey Brett, excellent article, thank you. Do you have any further material or links on how I can imagine accessing CBDCs as a consumer? What role will the payment networks play? Since the L2 (deposits, savings, payments) is currently completely provided for by private companies (at least in the U.S. / Europe), does this mean that the gov needs to recreate the L2 but on L1? Thanks!
Thanks, I enyoed the read! But I don‘t really get your hot take to be honest: Why would central banks see their layer 1 influence in danger? Physical cash may be less used, but this means these transactions just shifted to the layer 1 electronic ledger controlled by the central bank…
They could increase their influence with CDBC because they could provide interest (or charge negative interest) without layer 2 players grabbing some margin, but thats not connected to the physical cash usage declining.
My hot take: CDBC will not happen because no central bank has the capacity to engage in all the KYC & regulation tasks the layer 2 players deal with when everyone wants to open accounts with them.
Hey Brett, this is so brilliant, as ever.
One factual question I have arising from undertaking Meditation 3: What allows a bank to take part in the Credit Creation of Money and thus gain that power you speak of to direct the economy?
Could I declare myself a bank and just legally do this? I assume not; you hint that the state would need to authorise such?
Can/do *all* institutions that call themselves banks do this? I suspect not..?
Is it only banks in the 'central bank digital currency' club that take part in this..? If so, why?
Hey Bret! I've now read a few of your articles carefuly and I found them very insightful. I lean libertarian, though not in its extreme anarchist Citadel/seasteading form (in fact I find these visions only slightly less dystopian than a totalitarian world government). So I naturally sympathize with the ideas behind Bitcoin like privacy, decentralization and theoretical unseizability as proposed by people like Alex Gladstein, Troy Cross or Jeff Booth. However, I have some doubts regarding its long term security budget as well as its future acceptance, specially because it's really just a token (21 million, why not 20, 19 or 50, 69, etc.?). What do you think about a currency really pegged to energy (Bitcoin is only very loosely pegged to it) which would still (most likely) be deflationary, but would behave much more naturally (it would be gradual rather than sudden) and have a real connection to the way we consume the ressources of our planet. Currently our inflationary fiat system makes us need an exponential, unsustainable growth, which is mostly an effect of financialization of the economy. I'm no Malthusian, but also I don't think the current state of things is sustainable. What is your opinion on this?
Looking forward to part 2 about Bitcoin. Thanks for a great read🤙
Such a good article! I enjoyed looking at the issue from each of the perspectives you mention. So it seems, CBDCs a but further than people think?
"the power of their Layer 2 digital chips depends on the public believing they can be redeemed for state money, "
That state money's merit to the public consists, as to the background root cause, of solely its power to pay taxes, Mosler would say. As such, no one cares about Moneymatic machines, now do they--not for money's merit as "state money," that is. Comments?
Great essay. Thank you.
I’m with except I’m not totally convinced by this (summarised in your comment above):
“ The main issue is about the public losing confidence in Layer 2 digital money in the context of a decline in cash, which in turn is spurring the debates about a 'replacement' in the form of CBDC”
I hear of people losing faith in layer one due to there being too much money. But I don’t follow how an absence of physical cash in life will lead people to question the legitimacy of layer 2. After all, we rely on it more than ever now. And the banks are insured by the government so money that disappears in one is promised to be reappeared in another.
The completion a few weeks ago of the last round of re-selling of UK Bonds purchased under QE / LSAP indicates a loss of £150bn between purchase price and re-sale price. This ultimately represents a transfer from the taxpayer to the private financial sector.
The underlying instability of a monetary system based on private debt to commercial banks at a time when the public is resistant to taking on more debt was not addressed post-2008, therefore will happen again.
Sure the banks are only too happy to take handouts from the state ad-infinitum in order to maintain their 'too-big-to-fail' position at the heart of the monetary system.
The point of CBDC is that it provides a tool for government to reimburse losses to account holders with newly created CBDC so they can let private banks go to the wall when they go bankrupt. Since every citizen and business has a unique identifier (tax no. or NI number in the UK) this can happen without the active participation of said person or business. Furthermore, should the holder of CBDC then choose to risk that money by transferring it to a commercial bank, The Central Bank would be under no obligation to issue a second round of reimbursements, and the Consumer Credit Guarantee Scheme could be wound up. Perhaps funds held in 'building society' type institutions, i.e. true intermediaries, could be treated more favourably.
Issuance and control of the money supply should be as much a function of the state as defence of the realm. To have either of these functions in private hands is an invitation to treason.
Concerns around resulting excessive 'state-power' should be addressed as a matter of democracy-deficit, rather than one of monetary policy.
Imaginary's eh? Physician heal thyself. I wonder if you're suffering the symptom of most "experts" in that by focusing on your speciality you lose sight of some of the bigger picture? (although, as evidenced here and throughout your work, you do introduce nuance and uncertainty and introspection.) Please take a peek inside my "imaginary" (in case you missed it, from August 2021) https://thephilosophicalsalon.com/a-self-fulfilling-prophecy-systemic-collapse-and-pandemic-simulation/
The answer is to have commercial banks act as Agents of the Central Bank. Each bank would run a subsidiary ledger of the Central Bank, This ledger would record loans made by the bank in CBDC on ons side and the amount of CBDC held by its customers on the other. Existing loans and deposits could be switched overnight from the bank's books to the Central Bank subsidiary ledger. The banks would still earn interest on the loans they make on behalf of the Central Bank and still manage the payments system. The only difference is that from then on, no one could lose their deposit if a bank went belly up, as their CBDC would not be a liability of the bank, but of the Central Bank. The Central Bank would have no right to know anything about individual accounts. The banks would only report the total of their ledger to the Central Bank. Access to each account by anyone other then the bank and the account holder would require due process, as now. Also, within limits, CBDC could be downloaded to a phone or electronic card to be paid from device to device to retain anonymity, just like paper money. This would also limit risk due to a system outage.
I have not yet read part 2. As a crypto trader, my first thought is: it sounds a bit naive. Offering digital central bank money instead of cash clearly has no benefits for citizens. The advantage is exclusively on the side of the central bank ( and private companies acting on behalf of the central bank), which can control all aspects of the digital wallet at will. It's like giving my private keys and all personal data to an administrator who is known to be untrustworthy.