A disappointing development to be honest. This is one more way the government can exert control over the people. The downsides risks are horrendous.
I haven't yet read this publication in full, but last year I did read the House of Lords Economic Affairs Committee paper on the topic[1]. The title was quite telling: "Central bank digital currencies: a solution in search of a problem?" This was authored by Lord King, the former governor of the BoE, amongst others. It seems the current BoE is taking a different course.
More than disappointing - this is terrifying - even worse than China's social credit scoring on New Zealand's Cigarette prohibition.
This would enable governments to monitor and control literally every penny you spend or recieve.
I wrote a blogpost explaining who money currently works and warning about this development.
The government already has high degrees of insight into and control over the money of most people in the UK. Most people in the UK (in my experience, at least) couldn't care less about the day to day privacy implications of banking, it's not on their radar. The suggestion that this would enable the government to monitor more might be strictly true because it enables new types of monitoring, but that is already practically true in every way for most people.
I find it difficult to understand why a digital pound is anything more than an incremental improvement (or worsening from your perspective). What does a digital pound enable the government to do that would interfere with the everyday person's life, that isn't already possible?
(Also, cigarette prohibitions and social credit scoring are hot button issues for people who believe in the sanctity of individual rights but they're not at all related in the context of this discussion. There's nothing terrifying about a cigarette prohibition to most people, especially in the UK, where we've literally had various cigarette restrictions imposed over the years to the point where a NZ style prohibition would probably not even register for almost everyone.)
You must not know anything about the Digital Yuan being tried out in China and the kind of restrictions it comes with...for example: expiring currency, spend it by mm/dd/yyyy or loose it! Oh dear govt, give it to me harder.
> Tom Mutton, a director at the Bank of England, said during a conference on Monday that programming could become a key feature of any future central bank digital currency ... what happens if one of the participants in a transaction puts a restriction on [future use of the money]? ... Sir Jon Cunliffe, a deputy Governor at the Bank, said digital currencies could be programmed for commercial or social purposes ... “You could think of giving your children pocket money, but programming the money so that it couldn’t be used for sweets. There is a whole range of things that money could do, programmable money, which we cannot do with the current technology.”
This is stupid in so many ways but the worst thing is the idea doesn't even work - barter economies have existed since the dawn of civilisation and children are pretty used to them too, with trading cards, collectibles etc. All the child has to do is buy something of value they are "allowed" and then barter that for sweets with a friend whose money isn't restricted in that way.
"... children ... money ... sweets ..." that's some neuro-linguistic programming right here: the sir-jon skillfully inserts thin needles into the three spots and the patient becomes a willing veggie.
It's from one movie where two knights fought for some high title: "I've been made a knight, but not a single time have you addressed me by Sir. I demand respect!" - "My apologies, Sir... Jon."
The concept of expiring currency has been experimented with even in the era of paper notes.
Alberta, for example, tried circulating banknote-analogues that required a stamp to be added every week to remain valid; the goal was to encourage people to spend them rather than having to pay for the stamp.
In the context of something like economic stimulus payments, where the goal is to force jumpstarting the economy NOW, how would prevent people who can afford it from just setting aside their payment for later use?
My point is that it's hyperbolic to describe a digital pound as terrifying. A person may take issue with modern day banking granting the ability for people to be surveilled, and they might take issue with the UK's PAYE system which requires employers report their employee's income to the tax authority in real(ish) time... but that's nothing to do with a digital pound. A digital pound is a small incremental change in the context of privacy, and so ranting and raving about a digital pound being terrifying is the wrong target. People could waste years of their lives ranting and raving about the horrors of a digital pound, and convince the government to abandon all plans... and nothing about the actual privacy of day to day people would change.
I disagree with the framing you’re using: if the only protection today is policy, then a new technology (the digital pound) is immaterial. The government doesn’t need new technology to be able to change policy. Anyway, to answer your question, the tax authority here does not need a court order.
Agreed. A better question- how can we build a government which we can trust with unprecedented levels of centralized information?
The centralization of information is going to happen one way or another (the powers that be wouldn't have it any other way), and we've already been on this trajectory. So how can we build a system that actually respects privacy and upholds the common good?
That's a dumb question, sorry. We can't. That's why government's powers and role are constitutionally limited, and why the explicit limitations (even though the government is not supposed to have any powers other than those explicitly given to it) need to be updated as technology changes. The idea that we could build a government we can trust is absurd. It's equivalent to suggesting we could build a police force that can monitor everything we do, but will have some kind of structure that makes it not abuse that power. It's not even wrong, it's too ridiculous to even give the time of day to
You decentralize the government. The result might not be much better on average, but then at least people who believe that privacy is a common good can find a space for themselves and be left alone by the rest.
Encryption can be banned or otherwise regulated. While it wouldn't prevent people "with something to hide" from using encryption regardless, it would deter most regular people, which is good enough from the government perspective for the purposes of this exercise.
One can generate one's private keys by physically rolling dice and choosing words, thus avoiding the problem of rigged random number generators. The government still doesn't control physics (or economic laws, come to think of it!).
There's no nice way to say this, so I'm going to be blunt. You and people like you are part of the problem here. You are why this kind of overreach is even on the table.
I’m fine with that, because I’m responsible as part of the majority. The majority don’t care about any of this. There are far greater issues facing real people, and getting lathered up into a froth over something that has no material impact on the day to day lives of most people is not a productive use of time.
Any doom-mongering about a hypothetical future in which The Government is doing Bad Things because they know what you’re doing with your money is, well, ignoring the thousands of bad things that we don’t need to theorise about because they’re happening at this very moment.
For example, our government has starved our national health service over the last decade and there are very real threats to its long term survival: I care orders of magnitude more about that than I care about the hypothetical world in which the government make money expire or deduct from my social score because I exceeded my quota of beans at the grocery store this week.
Opposition to cigarette bans is usually just reactionary nonsense or grousing from people selling the cigarettes.
Gold standard advocates passionately debated about terrible problems with silver in the 19th century. Crypto demonstrated that digital cash has value - even when that is backed by various grifts.
Is brilliant and the only way to realistically ban cigarettes without screwing over entire generations who are already addicted to nicotine.
Let's give a real example. My great aunt in her late 60s has a 40 year pack a day smoker. There is zero chance whatsoever she would be able to quit before she dies and it would be cruel to try and make her. There is no way you can pick a single date after which smoking is banned for everyone, it will be so loudly, and rightly, fought that it would never pass. I don't want to live in a world where a not insignificant percent of the population simultaneously goes through nicotine withdrawal. Because I've seen my friends quit and patches and gum don't keep you from being miserable.
If you don't think cigarettes should be banned, fine. Valid stance. But if you think they should this is the way.
The problem with fine-grained approaches like this is that they are much easier to get passed: people are much more willing to restrict the freedoms of other people rather than themselves. For a ban like that to be ethical, it would have to have been voted on by the people it would apply to, i.e., the people below the age cutoff (who in this example, can't vote at all).
Sorry, did I miss something? The "fucking up the planet" thing seems to be a non-sequitur, unless you're suggesting that people smoking are fucking up the planet, which doesn't seem like it's the motivation for the bill as much as "stopping people from fucking up themselves" is.
Regardless, I disagree with the line of reasoning that because it can be repealed it's okay to pass it in the first place. The core problem is creating laws that artificially inflate their support by making them only apply to some sub-group. Passing laws that only restrict a minority due to practical reasosns is bad enough. For example, cities' anti-camping laws basically only apply to the homeless, because no-one chooses on a whim to camp in downtown Los Angeles. That's not great, because its a tyranny of the majority situation, but at least in theory the general populace has to weigh the loss of their ability to camp in downtown against the pros of not having homeless camps in downtown.
In a situation where the law explicitly only applies to the minority, especially a minority that no one in the majority could ever eventually belong to, the majority get to have their cake and eat it, too, leading to artificial support for your bill. If you can't find the political support to ban cigarettes outright, back-dooring democracy is not the right way to do it.
> laws that artificially inflate their support by making them only apply to some sub-group
The NZ smoking case is interesting, though, because over time it will apply to the majority.
> If you can't find the political support to ban cigarettes outright, back-dooring democracy is not the right way to do it.
Requiring all public buildings to immediately retrofit for wheelchair access wasn't practical, but in the US proponents were able to get support for requiring this for new and heavily renovated buildings (the ADA). Having a gradual intermediate choice makes a lot of sense in cases where a full ban is really bad for people (or buildings) that are dependent on the old way and we also don't want to continue to allow it indefinitely.
The ADA's significantly different, in my opinion for one simple reason: Buildings don't vote, people do. Everyone voting on the law could potentially be restricted by it, because they could build a new building or renovate an existing one. Therefore, while the people voting for it could be operating under the assumption of "Don't care, already got mine", they're still restricted by it going forward.
In contrast, NOBODY who voted for NZ's law will be restricted by it.
I’m not suggesting smoking is fucking up the planet. But I am suggesting that in general, there are tons of policies in place that further contribute to climate change, which will also only affect younger people and on. Except those are even worse, because one cannot simply reverse climate change by passing a new bill.
So, I get your point, and I don’t necessarily disagree. But if we agree on that logic, then I care far more about stopping climate change, for the sake of future generations democratic welfare, than I do about allowing them to smoke.
Having said all that, I don’t know how NZ ranks in terms of climate policies, perhaps they are already the best in the world.
That's a pretty strong false dichotomy. The government is in charge of a lot of things, they must do multiple things at once. Passing unrelated laws and passing laws relating to climate change are orthogonal.
If we vote to, say, ban the sale of new internal combustion automobiles, sure, it restricts future generations. But it also restricts the voting body, today, by restricting their ability to purchase new cars. The voters are weighing the necessity of fighting climate change against the restriction of their freedom to purchase an automobile. Perfectly fair. If we instead are voting on "lets ban the sale of automobiles to anyone born after 2000" or "lets ban the sale of automobiles starting in 2123", then the people voting on it are not, and never will be effected by the restriction that they voted to put in place. THAT is unjust.
Out of curiosity, how repressive a government would you be willing to tolerate if it consistently used a significant part of its political power to stop climate change?
It will cause people to stop using government money. There are many other ways to barter and exchange goods. I expect it will only increase tax evasion as less transactions are even reported.
It's no surprise to me to see government gold buying on an absolute tear. [1] The powers that be are well aware of the importance of having real physical goods for the sake of trading and maintaining wealth.
> There are many other ways to barter and exchange goods.
Genuinely curious - what do you think will happen (and what would be used)?
I genuinely can't imagine most of the people in my life (be that older relatives, non-tech friends, whoever) using anything but whatever 'money' is convenient. None of them care the government might be watching, and if they were going to barter for anything they're probably already doing it ("you help me with this DIY, I'll take you for dinner").
FWIW I'm in the UK, so perhaps my perspective is skewed?
Whatever is readily available to be converted into digital "cash" when needed will be used. Wealthy people maintain most of their assets outside of cash in property of various types. When they need "on the books" spending, they bring it into the cash economy with on/off ramps.
I don't know if the UK is different from much else of the developed world, but here there is a tremendous amount of off-by-book transactions in the largest industries such as farming and construction. I do not think that the disappearance of cash will remove this economy, but it will have to migrate to other assets with similar qualities.
Maybe for large significant transactions, but barter economy is next to impossible for consumer goods. If a lot of the economy goes off the books, it will come with greater friction between transactions, less overall liquidity.
Fortunately though there are lots of substitute currency-like instruments out there. Prepaid debit cards, Amazon gift cards, etc. Or even foreign currency cash like US dollars.
This is indeed a scary prospect. However, let's be frank about the benefits of such a currency: better control over counterfeiting, financial convenience with low cost transactions, etc. If we can ensure anonymous 3rd party transactions, there could be enormous opportunities.
So I assume you get paid in physical cash? And you pay your rent in physical cash? Or perhaps you have a mortgage which, of course, was lent to you as physical cash which you delivered in a wheelbarrow to the previous owners of your house?
Unfortunately 98% of the money we already use is digital and controlled by the private banks. What's worse, the government or private banks? You could argue that we go back to physical cash only. Good luck with that. Or you could argue that we move to trustless decentralised digital cash like Bitcoin. Most of us who were in favour of that have given up at this point.
Government controlled digital money might just be the least worst option we have at this point.
If you're worried about "total bank surveillance" (which seems to be most people in this thread), don't.
Every single bank you have an account with already has to keep track of know-your-customer information. It's not like the fact that there's a centralized digital currency will give the government more control over you than not. The government can simply tell the banks to hold your assets, put you on a list that prevents payments providers to service you, etc.
The digital currency won't make any of that worse.
The good thing about digital currencies is that'll actually take power away from commercial banks. Right now you need to go through someone like Barclays, HSBC, etc, to get your money. CBDC actually lets you keep your balance directly with the government ledger and avoid relying on banks for everything. This is a good thing.
Beware that commercial banks are obviously opposed to this and will be very vocal about it.
"* money that is programmed to only be spent on certain goods or services"
This is basically a rationing system, like the olden days in China and the Soviet Union, where it wasn't enough to have money, you also needed a ration coupon to buy the good. Everything was rationed not just food, but bolts of clothes, consumer goods of any type, electronics (if you were fortunate enough to be able to afford it).
In this way the regime controlled scarcity and ensured loyalty and favoritism by awarding special rations and coupons for those who uphold the correct ideology and "meritorious labor". Each month your work unit issued a new ration book for the month that is based on your families' allotment of grains, cooking oil, clothing, soap, etc. If you are being a bad boy and you don't get your ration book for the month, you can't buy the goods in the state supply shop and have to go the black market.
Thus pure money wasn't good enough to live well or even to survive in those systems - one needed connections and access and the authorities can cancel your access at any time.
That is what a CBDC has the potential to evolve to and what worries me - a digital ration book. If all a CBDC is is digital cash, then we already have that system (Visa, e-payments, etc) and things won't change much but if a CBDC is a programmable form of money that can be disabled, inflated at will, turned off, or only allowed to buy certain goods - then there is no limit to the amount of tyranny that will be on hand. In a free country common people will not and should not accept it.
> If all a CBDC is is digital cash, then we already have that system (Visa, e-payments, etc)
It has taken me a while today to get my head round this, but no we don't have digital cash.
Visa, e-payments etc. are all claims on financial institutions (banks, payment providers etc.). Those banks then indirectly have a claim on the Central Bank currency for us.
The only thing that gives private individuals a direct claim on CB currency is cash, which is increasingly less a part of society. This is the Bank of England (potentially) empowering private individuals and making us less beholden to banks.
The UK has had rationing before (in wartime, and for some time after) and didn't need a CBDC to implement it. It also already has the power to freeze assets, levy taxes, ban products, introduce license requirements, etc. Why do you think a CBDC makes the government more likely to use its powers in a manner similar to what China and the USSR were doing long before CBDCs were conceived of?
Do you want to make it even easier for the government to do that? Sure the government can come to our house tomorrow and seize from us under one charge or another - but there is a price to pay in terms of public opinion and the physicality and limitations of applying coercive force to you. But digital tools, if you made it easy and convenient enough, then it becomes another matter.
Justifying extensions of government power with "but they can already do that" is cowardice at best and disingenuous at worst.
Sometimes government needs to do that and when it does it's costly and the cost comes from our collective pocket. So making it easier just saves us money.
There's of course argument that if it's easier it will do it more often so it costs more. But that's something that will need to be controlled through political system.
Basically development of humanity is making forms of oppression increasingly more painless and predictable to both the oppressor and the oppressed. Predictability and painlessness is good for business so we thrive.
You can't get rid of oppression. Humans will always divide into the ones that hoard power and those who don't with former living off the latter. Best we can do and the best we've actually done is to make this process as painless and as predictable as possible. Currently we are at the stage of territorially divided monopolies on violence. We learned in world wars that "territorially divided" is a very important part.
Starting to go off topic but, there is no such thing as painless oppression or making it "less painful". You can view the matter in abstract from a distance like this, but if it ever falls on you or your family then it becomes a different matter. We can all view the matter impersonally and without passion, the philosophizing stops the moment it lands on our own heads - and I don't believe one can go through life without ever being on the wrong end of that.
> there is no such thing as painless oppression or making it "less painful"
What kind of opression do you prefer? Filling a tax form every year and paying what you calculated under the threat of arrest (while telling yourself you are voluntarily contributing to society and less fortunate) or being raided by a warband with guns on random intervals taking whatever they please and leaving you only what they at the time believe will let you bounce back so they can raid you again sometime in the future?
Either you are one who enacts or profits from violence or you are affected and robbed by violence. It's a constant setup since the beginning of the human race (or even before that). The only change that evolution of civilization delivers is making the violence predictable and gradual, thus less painfull, thus allowing for more efficient economic activity. If you make oppressors work harder for their cut they'll just take more from you once they do take it.
Winning elections is a lot of work to get to the point where one can collect their cut. Should we get rid of that obstacle and return to hereditary nobility in the interest of making violence less painful?
Hereditary nobility doesn't result in less painful violence. It results in way more painful violence less often in the form of revolutions either successful or supressed.
The main value of democracy is making the oppressed docile and easily subjugated.
And yes, winning election in US is way too costly. Budgets for campaigning should be capped. Other countries manage to sustain democracies with far less. Ultimately it doesn't matter who wins as long as it's not the same faction all the time. In that case unrest wouldn't be suppressed and violence would necessarily get more painful.
Democracy didn't win because it's moral or just. It won because it's most efficient system of maintaining oppression in post industrial technological landscape. You can look at how fragile single party system of China is, or Soviet Union was in comparison to even just rudimentary two party system like in US.
Because you can push a single button and a person is in the cold. There will be no disruption for anyone else, just your one neighbor with the dangerous views can't pay rent and buy food anymore. I can't think of anything more dystopian.
Do you understand that by definition a government is able to exert violence against citizens? Surely you must find this more terrifying than the possibility that they might be able to stop someone from making payments.
They have always been able to do things like this in a targeted way to particular people at some cost as well as at some inconvenience to judges and police officers, but not efficiently, programmatically, instantaneously, at scale, and integrated with the rest of their surveillance infrastructure. This creates similar risks and incentives for politically targeted abuse and the advancement of totalitarian, technocratic forms of government masked by secrecy laws to those presented by the FISA court system.
That’s kind of distorted. Government has the monopoly on violence, true, but only to the extent as the law grants it. A prime focus of constitutional law is to set strict limits to and legal recourse against acts of government.
Well, in that case, the same applies to CBDCs, but so far all criticisms of CBDCs assume that the government will use CBDCs as a means of oppression unrestrained by any laws.
I'm saying that, if we assume that the government will oppress people (that's the assumption that CBDC critics make), it's silly to assume that it WILL use CBDCs to oppress people, and at the same time assume it WON'T use violence to oppress people.
> That is what a CBDC has the potential to evolve to and what worries me - a digital ration book. If all a CBDC is is digital cash, then we already have that system (Visa, e-payments, etc)
Famously, credit cards prevented microtransactions from ever being a thing, and may have very well lead to the ad dystopia we now live in. Insisting on taking a % cut of every transaction, and not allowing small transactions to occur, has dramatically limited business models across a multitude of industries.
Imagine going back to 1999, before clickbait journalism, when newspapers were incredibly well staffed with fact checkers and when long form journalists could easily spend months upon months on a single article.
Now instead of forcing a race to the bottom of ads and needing to get as many eyeballs as possible, imagine if it was even possible to experiment with a 5 cent per article view microtransaction.
Reddit and Twitch have both shown that users are very willing to invest in microtransaction ecosystems for large enough content platforms.
Saying Visa is the same thing as digital cash is rather inaccurate!
Are those examples we want to emulate in broader society though? At various points in my life, I have used both of those services extensively. I have never spent money on Reddit, despite being a registered user for 12+ years. I lurked for a year or two at least before creating an account.
On Twitch, I did have a free Prime sub that I would use, but I never spent any more on the service. I'm admittedly behind on the meta now, but is it even possible to give a streamer 1 "bit"? Or is there a minimum requirement of 10 or 50 bits? When I watch streams, I see some people donate with bits, but it seems like a way to save the user from making multiple purchases in a row, rather than a new paradigm of wealth transfer. "Hey, I'm gonna buy 500 bits now and donate 50 per stream" as opposed to needing to pull out the credit card on streamlabs or paypal 5 times a week.
The accounts are already electronic and can be frozen at the government's will, and the government can already set new spending rules which apply to all bank accounts whenever it wants. Commercial banks have the same purely theoretical capabilities to issue electronic accounts with time limits or spending restrictions on the money as the central bank, but the central bank has a lot less incentive to do so
It wasn’t to the same extent I’m sure but the USA did have rationing during WW2 with ration books and all. It was organized through the Office of Price Administration.
> money that is programmed to be returned to the bank unless it is spent by X time
Quick note that regular money works like this, although you might not realize this if you grew up in the USA since afaik it has never happened here. Governments re-issue all the money quite often. UK did it in 1971. India did it in 2016. It happened when the Euro was launched.
All money (except for coins) is created in loans, which have a maturity date, at which "money is programmed to return to the bank", else you're forfeited. The monetary aggregate is ever-rotating, else all stops. It used to be 90 days, not sure now.
At least that was the state of affairs until 2008. Since then the system is more or less in decay, at least by standards which where held before.
The simplest way to exchange old notes for new is to use them to pay for things while they remain legal tender, which also neatly avoids such questions.
Now, if your government is of the kind that can realistically announce over the weekend that cash is going to be worthless by Monday unless exchanged, then yeah. Then again, if you live in a place like that, you probably already know to keep your money in foreign currency and use the black market exchanges as needed.
Is there a threshold to get these kinds of questions? I've never had to explain where I got a ratty old $20 bill from. I'm also not trying to replace $4,000 in old bills either.
All of that makes the money have lower value, and is similar to how central banks manage money supply by making it easier and harder to get.
The rest of it already exists for normal money. Tyrannical control over finance isn't a property of a digital currency, it's a property of the government. Your causality is backwards. A bad government will do that whether they have a digital currency or not, and a digital currency has no moral properties as it's just a tool.
Whether a digital currency makes it easier at the margin to oppress people, I don't think it does. You can imagine how many headaches an imperfect implementation could cause.
If the digital currency is so restricted that people would rather use cash, it will death spiral to zero as merchants who accept it can't trade it for full value to others. The only way around that would be for the govt to backstop it and trade 1:1 with cash, which would defeat the purpose of the restrictions.
according to this logic, total video surveillance is ok too, because it's just a tool. the government scanning all your private conversations is ok too, as long as the government is good.
but all these could be used by a government to influence the voter behaviour such that they stay in power forever, China style.
It doesn't make those things OK because the argument against those things isn't that they enable the government to act in an authoritarian manner but that they are violations of individuals' right to privacy. Total surveillance is a bad thing in its own right. A CBDC is, as far as I've seen so far, not. And the argument that it should be seen as bad because it could be used for bad things by a bad government doesn't hold water, because preventing a CBDC wouldn't materially restrict the powers the government could wield if it were to become authoritarian.
You're clearly convinced that governments slide inevitably towards authoritarianism and can only be prevented from doing so by practically restricting their powers, but it's a rather backwards way of thinking about things. An authoritarian government takes whatever powers it wants and wipes its arse with any rules that have been written to supposedly prevent it. If an authoritarian government thinks a CBDC will be useful it can just make one. Not that it would have to, because the government's existing powers are already sufficient to implement all the nefarious schemes people are worrying about in this thread.
The way to avoid the threat of an authoritarian government is to have a fair and well run electoral system, a healthy national political dialogue and a well educated population (not that these things are easy), not to assume the government is inevitably going to go bad and block it from implementing useful policies in a futile attempt to curtail the powers of the dictatorship you've convinced yourself it will one day become.
It sounds like you imagine a totalitarian regime’s rise as a one hit move, with it rising to power and immediately abolishing laws, etc. in reality, it’s usually a slow crawl with another kind of freedom being taken away every time. With any such increment towards totalitarianism, folks like you will stress how this particular small step isn’t the one thing that enables totalitarianism.
Totalitarian rulers like Orban and Erdogan owe everything to people like you.
It is counter to the logic that, because cameras exist that they enable surviellance or because private conversations exist that enables the capture of those private conversations or ultimately because voters exist that enables someone to influence the voter.
The solution to that logic is to abolish everything.
> money that is programmed to only be spent on certain goods or services
The US food stamp system does this.
> unaccountable/summary de-monetisation of persons and businesses on the whim of a government
The US police seizure system does this; I submit that if this happens you have a serious rule-of-law problem and already, or are about to, have bigger problems.
> universal credit/benefits being issued as CBDC instead of fiat currency, creating a two-tier society where only the rich get access to fiat
Nonconvertibility is a forseeable next step. I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones). Then the decreasing popularity of paper pounds would be used as a basis for eliminating them entirely: going forward, paper pounds could be deposited for digital, but not withdrawn.
Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...
> No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...
Why would they do this? There's already a much more streamlined legal mechanism for this: taxes. Plus, this isn't some new feature. If the government orders you assets frozen/seized, then a bank is going to comply with the order.
> I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones).
Again, not new. This is basically an ATM fee. Paper money has costs associated with it, whether that cost is paid explicitly (through fees) or behind the scenes (collecting fees from purchases, selling information about you to third parties, or "borrowing" your deposits to collect interest on it) is pretty much irrelevant.
Nothing you're saying is a "new" feature of digital currency.
> this isn't some new feature. If the government orders you assets frozen/seized, then a bank is going to comply with the order
You aren't seriously trying to imply that it would be feasible for a government to decide to seize 5% of everyone's bank accounts at present? Being able to do something in a targeted manner and being able to do that same thing to the entire population at once with ease are not at all the same.
This is actually where a lot of people's perceptions about government tyranny seem to break down somewhat inexplicably. Guns? The police can show up right now and outnumber you so it makes no difference if they're outlawed. Restrictions on movement? The government can already blockade roads if they want to so it makes no difference if checkpoints are allowed to be constructed. Mass surveillance? The government can already wiretap you without your knowledge so it doesn't matter if that process is allowed to be automated.
All of those positions are very obviously false and yet a significant portion of the population seems to struggle with the common underlying concept. Enabling a behavior en masse with little to no friction is not at all the same as something targeted that requires noticeable resource expenditure to carry it out in each individual instance.
Taxes are generally set in proportion to income, not savings. ATM fees are limited by competition to close to the bank's actual costs, rather than a deliberate policy to eliminate paper currency in circulation; if they charged upwards of 10% on withdrawals, people would very likely leave.
More importantly, this wouldn't be a tax on wealth, it would be a tax on savings, meaning it would disproportionately affect the less-wealthy and the less-credit-worthy, who tend to not own significant assets or have the borrowing power to buy them. In terms of the discrepancy with a wealth tax, imagine trying to save money to buy a house, except that the house price grows each year, due to negative interest rates, while your savings account shrinks by the same proportion. Perhaps it doesn't take much imagination, because it's similar to 2020's zero-interest-rate environment, but without the restraint of being bounded by zero.
When people talk about central banks using negative interest rates to juice the economy, they mean the interest rate for borrowing, not for savings. They're related, but not tied to each other. The Fed lending money to my bank at a negative rate means my bank will be more likely to lend me money to open a business; it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account).
Are you imagining the government using digital currency to enact some kind of "shrinking money" policy that would have the effect of a negative savings rate? If so, why would they do that, and couldn't they do that regardless of whether the central bank lending rate is positive or negative?
> it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account).
Indeed. The reason why this matters, and becomes possible, with a CBDC is that there is nowhere left to "withdraw" to. Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?). The fact that account holders would withdraw if rates on savings became negative is why central banks presently are unable to reduce the interest rate (significantly) below zero. With a CBDC, "withdrawing" simply means transferring from your private bank account to your CBDC account.
It would not be the government enacting this policy, but the central bank itself, as a necessary step to conducting monetary policy below the zero bound.
> with a CBDC is that there is nowhere left to "withdraw" to
Why can't I use them to purchase dollars or yen? How did we get from the BofE issuing a currency that people can use to everyone being forced to use it? (Also, may I humbly suggest the wikipedia article on Gresham's Law, if you're not familiar with it: https://en.wikipedia.org/wiki/Gresham%27s_law)
I agree that bad things would happen if everyone was forced to use a currency they don't want to use, but that's kind of axiomatic.
It's the obvious logical conclusion. Much of Europe is already actively trying to eliminate cash for quite a few years now. So the notion that a CBDC is acceptable specifically because cash will still exist, and that people won't be actively prevented from using cash in the future, is utterly absurd in light of the facts on the ground.
> Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?)
The interbank rate has to be lower than 7% I'm sure, but that's what I have in a savings account.
> Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...
Can't they do this already by increasing money supply or QE? Central bank's can already create inflation which isn't dissimilar to negative interest rates.
QE is effectively an interest-rate cut but for long-term bonds rather than short term. It would typically be used in conjunction with control of the overnight rate, which still struggles with the zero-lower-bound unless the ability to hold cash is removed from the system.
> The US police seizure system does this; I submit that if this happens you have a serious rule-of-law problem and already, or are about to, have bigger problems.
The US police seizure system already is a serious rule-of-law problem due to lack of accountability.
> The US police seizure system already is a serious rule-of-law problem due to lack of accountability.
The US police seizure system already is enshrined in the actual law. However, by the "rule-of-law" it is the law. The problem is that particular law, every single word of it.
> "* unaccountable/summary de-monetisation of persons and businesses on the whim of a government"
This is A) a correct, valid worry and B) isomorphic to the "surveillance" thing, in the sense that the surveillance is just a means to an end. They mostly want the surveillance in order to demonetise the outgroup (however that outgroup is defined).
> if you don't use your budget by xyz date, you lose it
It doesn't apply to cash or my bank account. I do not want that to change. I will not support a tool that would enable this.
> Food stamps can only be spent on food
Those are not cash. Those are effectively gift cards for use at a grocery store.
> you must meet specific criteria for tax credits, etc.
Yet the tax credit is paid in cash. You can do with it as you will once you receive it. I will not support a tool that would change that.
> Some businesses will absolutely not take your money without extensive KYC already
The fact that a problem already exists is not an argument in support of making it worse.
> Banks already arbitrarily shut down bank accounts with no recourse.
Once again that doesn't justify actively making things worse.
> The whole point of money is that it's the common means of exchange, it's not very useful as money if only some people use it.
Many countries apply controls when converting to or from foreign currency. China in particular is known for this. Does that mean that their currency isn't useful to the people who live there? If the poor aren't permitted access to traditional cash they would have no choice but to use the CBDC whether they wanted to or not. At least aside from outright bartering, which is even less flexible.
> > money that can have its spending and issuing rules changed quickly and easily by the current government of the day
> That's already the case today.
No, from the perspective of the individual it absolutely is not. If I have US cash or even a balance in a bank account in the US the government cannot "quickly and easily" modify the rules by which I can spend it. Particularly for paper cash their only options seem to be either to outlaw a particular sort of transaction and hope the police can enforce that (doesn't work, see drugs) or reissue the currency to force me to exchange it for something that they have more control over such as a CBDC.
Thats a good point, currently, with todays technology and changes to bank notes, it wouldn't be hard to take a photo of all the bank notes in someone's purse and wallet showing the bank notes serial number when it enters someone's possession.
It will certainly reducing muggings and thefts if this activity took place.
That image and bank note serial number can then be uploaded to a central, database where bank notes in various currency's can be geolocated and its movements tracked. You device and smartphone can equally form a distributed blockchain database by having your device share the data with those devices around them.
When a bank note leaves someone's possession, the app can be notified of a possession change where the currency then enter's a dark web like state unless the bank note movement is into the possession of someone else using said app.
Whether the banks and currency printers want to get on board with such idea in order to complete the introduction and retirement of bank notes in order to help build confidence in the currency, remains to be seen.
Of course, if banks and currency printers dont want to get onboard with this public track and trace of the public's currency, then are they reducing confidence in the currency, in effect weakening or expiring the currency just like we see in this white paper and in China crypto currency experiments.
Afterall, no one person can track and trace the bank notes that pass through their hands, we dont know just how bad counterfeiting of bank notes is. With todays tech, namely smartphones and an app, it would be possible to restore even increase confidence in a currency in a totally passive aggressive way!
This would also be a way to decentralise existing currency's in todays form, as this app and photo of the bank serial numbers is like cryptocurrency miners and every photo becomes an entry in a Blockchain which would make it hard for any AI to replicate and highlight any physical currency counterfeiters.
In other words, the public could become the pseudo cryptocurrency miners, and their participation would strengthen the currency they use. This way, the many benefits cited by the central planners like the Blank of England as done here, can be applied within days of this idea being made public.
How quickly could you undermine other currency's like the Dollar or Euro if a population were to suddenly adopt this change of behaviour?
Most people only ever have in their possession a fraction of the bank notes supposedly in circulation, and these officially circulated bank notes are only a fraction of the total money that exists in a currency. If you are familiar with this infographic https://traversals.com/blog/surface-web/ you should understand that the serial number on your bank note is just the Surface Web, and that banks and central planners are the dark web!
No one has a bank account which shows the bank note serial numbers entering or leaving your possession and no currency provides a means to currently track and trace all currency! Arguably its one giant fraud operating in plain sight!
> not like the fact that there's a centralized digital currency will give the government more control over you than not
Of course it does. There is no central registry of who has accounts where and what they’re doing. Records are maintained at the edge. Modern banking is topologically decentralised.
CBDC opens central bank money to the masses. (It isn’t a new idea [1][2].) It has advantages. One disadvantage is it ports over blockchain’s centralised record-keeping. Running a search on everyone who purchased from or donated to X between such and such dates changes from a record request to every bank, credit card company and P2P app that did business with X, a request process which takes time, may cross jurisdictions, tends to require X’s coöperation, and is lossy with some payment methods, into a database lookup.
The quiet power grab is this being, with virtually zero debate, a central bank’s digital currency versus e.g. an independent public bank’s.
In a likely implementation, it will centralize control over accounts and transactions. Anyone with access will be able to grab all financial data in a pinch. Rich people, and resourceful organisations, OTOH, will be able to circumvent it. So it is to be expected that e.g. terrorism investigations will center on normal citizens, just because it's easier to do.
And any future authoritarian regime will of course not play by today's rules, and put the opposition under financial scrutiny within a day, and simply starve the people it doesn't like.
I hate banks, but I think I like them better than this option.
>And any future authoritarian regime will of course not play by today's rules
Or current authoritarian regimes. We have already seen protesters in Canada have their bank accounts frozen by edicts from the government without any sort of trial or legal process. Truly frightening to think what they would do in a cashless society (which is the ultimate goal of centralized digital currency) to coerce all sorts of desired "behavior".
The Canadian government didn't just freeze bank accounts, they froze bitcoin addresses that the protesters used to receive donations from supporters. There is no reason for me to think that a CBDC wouldn't be used the same way.
Taking the power away from decentralised / competing entities motivated by profit and giving it to a centralised government that has a track record of abusing individual freedoms and seeking more power is not a good thing
I think you're totally missing the point. With CBDCs the state will be solely able to control who has access to the monetary system and you're not able to escape without physical notes. There is also so much potential for misuse (e.g. social credit system). CBDCs are in my opinion, one big step towards dystopia.
The banks don't know how much money I have, because the different banks I use don't talk to each other. The bank knows I buy things from amazon, but they don't know what I buy. The government knows what I report in taxes, but little else. Shops I purchase from know that I have paid, but they don't know my name or my bank account #.
Every party knows something about me, but nobody knows enough for me to be worried. The current system is pretty good at protecting my privacy, especially given how primitive it all is.
Maybe the banks don't tell competing banks how much you have, but since the Patriot Act, I wouldn't count on the government not knowing if they want to know.
Provisions of the Patriot Act allow banks to share customer information with each other for “compliance reasons.” The government is increasingly encouraging this. What this will mean in practice 30 years from now is that one account closure will mean that you’ll never get a bank account again.
The Bank of an England does as it requires reports from each of the banks in the Sterling Framework.
Anti money laundering regulations allow the authorities to gather a full picture if they need to.
Including any accountants or financial or legal professionals you interact with - all of whom are required by law to report any activity they consider suspicious.
To be fair I don't like the commercial banking system but having all the banking system centralised like that is so much worse. At least the commercial bank system is in some way decentralised.
Also CDBCs are programmable, Programmable money is a dangerous tool in my opinion. The State could thoroughly control everything you could do with money (e.g. carbon allowances, money that expires etc.), money would literally become vouchers controlled by the government. Pure dystopia.
That's nonsense. Different banks don't have direct access to one another. HMRC/IRS don't even have direct access to your bank.
Anyone who has ever tried reconciling separate accounts knows how hard it is. To have it all in one account, and therefore queryable from one single API, is an absolute step function in the direction of surveillance.
Just think about how taboo it is to ask someone how much they make/have, and think about why it's taboo. Financial information is some of the most private information there is. Before you know it, with all of it under one API (or in one account), Equifax will release a product gatekeeping access to this API to "verify" income or assets, but in a far more powerful way than they already do.
CBDCs are intended to be used like pocket change, as far as I know. People will continue to use banking and payment services, so I doubt that it will all end up in one account.
As an addendum the commercial banks have a profit incetive in form of future uses of said know-your-customer information (overdrafts, financing, mortgages...) even if actually "just managing your money around" is net unprofitable, as it usually is.
I don't see how having the govt foot the unprofitable part of the whole thing for no clear benefit for them (govt already know everything, kinda) will help the financial system at all.
I think one plan is to have CBDC accounts direct with the federal reserve. These accounts would be convenient with the added cost of a lower interest rate than regular accounts. So, regular banks could still compete. They call this the risk of "disintermediation". There is literature at the Federal Reserve website that discusses this.
As much as I think the big banks are scum, I prefer having them than depending exclusively on one central vector. You can choose your bank. Competition is a good thing.
Money needs to be as far from politics as possible, a central digital coin is the opposite.
CBDC's introduce an additional capability in that it is effectively programmable money. Imagine some money only being able to be used for certain things, no anonymous third party transactions, automatic shut off certain accounts. This is a new area. Existing accounts can do this to some extent, but it is still decentralized to some extent. But I agree the only way to avoid surveillance is tthe use of cash.
> The good thing about digital currencies is that'll actually take power away from commercial banks. Right now you need to go through someone like Barclays, HSBC, etc, to get your money. CBDC actually lets you keep your balance directly with the government ledger and avoid relying on banks for everything. This is a good thing.
"This is a good thing" is a very strange conclusion. Yes, let's shrink the private economy and make people deal directly with the government for the most basic unit of commerce, money. I can't possibly see how this could go wrong.
Your argument relies on two strong assumption, "everything private economy is good", and "everything government is bad". Unless you add strong reasoning behind it such blanket arguments I default to scepticism.
I'm very strongly opposed to CBDCs, but they could certainly be a good thing with a good and trustworthy government. However they also open up a hugely tempting, dangerous, and damaging failure mode which would rapidly overwhelm all the positives. My concern is, how many successive good, responsible governments can we expect before one of them goes bad? And how much does the existence of this failure mode increase the chance that one of them will be tempted to reach for it?
I'm sure it will not fail right away, and there will be a sustained period of benefit. But I don't think it's worth the longer-term risk.
> how many successive good, responsible governments can we expect before one of them goes bad?
Any system of government that relies on a successive chain of responsible people in power is doomed to fail more quickly than anyone thinks. This is why the American idea of "ambition must be made to counteract ambition" is so powerful.
No, it is really "competition" (banks compete for my money) vs "monopoly" (no other option than the government).
The assumption that CBDC is a good idea because the government is always benevolent and does what's best for the people is incorrect, as demonstrated by the horrible financial mismanagement in the recent 20 years.
You do realise that "money" (its creation, destruction, and value) is entirely in the control of central banks and the private banking sector, right? Unless you are bartering with gold or cryptocurrencies in your daily life I fail to see your point.
I think the timing of this release is highly suspect and the real reason is a lot simpler.
The magnanimously negative impact of Brexit on the kingdom coupled with recent outlandishly irresponsible neoliberal monetary policy have put the UK in a precarious situation where member nations are unironically reconsidering membership. Scotland last november gave it serious consideration, and in 2021 Wales seemed poised to give it a go as well. the alternative these states are electing is the EU and if such a choice were to be made it would surely spell disaster for England.
Brexit has also created an unnecessary burden on corporations with a euro presence in that all must now be renegotiated at significant expense. The easiest path is to simply tell this relatively small kingdom of 67 million to trade only in euros, and this in turn would further devalue the pound sterling.
the "Digital Sterling" serves a twofold purpose: to distract from the slow rolling catastrophe of Brexit and other hardline neoliberal policies by offering something that appears to be progress, and as a desperate effort to court business and commerce back to the kingdom.
I doubt there is a different definition there, but perhaps checking a British Dictionary about a British event would be a good idea. Also, I think they were using it sarcastically.
"The digital currency won't make any of that worse."
I understand the argument but I suspect in practice you will be less susceptible to the predations of your bank and substantially more susceptible to the predations of your government.
At which point you should ask yourself, is it easier for me to change my bank or my government?
CBDCs are obviously evil, but I really wonder how come people don't fight more against KYC? KYC policies are truly exclusionary, they exclude literally millions of families from being able to transfer money or interact with whatever "KYC'd" services.
And guess who's the most affected? How come all "inclusivity above all" folks never talk about KYC policies?
Maybe commercial banks have too much power, but once I do get my cash out of the bank and into my hands I can do whatever I want with it. The government can't suddenly tell me "We saw what you did - your money is no good here".
It shortcuts due process and the judicial process. Bankers are incentivized to defend their customers if they are sufficiently large. Now the entire financial system is under direct control of the state.
Let's not pretend for a second that people are actually looking for privacy whilst they walk around with iphones, with tiktok, facebook, money apps, location tracking fitness apps etc.
Anyway, I think governments could regulate better to make payments more of a public infrastructure type deal. The banks will still make a stack of cash on all the other things they do.
I think the Twitter Files blew the lid off on the illusion that corporations are private in the sense they get no direction from the government. Matt Taibbi found the FBI to be deeply embedded in Twitter. Don't think they are not at Facebook as well.
"The twitter files" while cherry picked to manipulate the narrative to attempt to show the opposite simply demonstrated that corporations reject the state requests as often as they oblige the state.
It's not so much the privacy aspect. There are laws in existance to protect free speech (to some degree).
There are no laws in existance to protect access to currency and if it is successful there will be no way to exercise resistance should government cease to be answerable to the people.
> Every single bank you have an account with already has to keep track of know-your-customer information. It's not like the fact that there's a centralized digital currency will give the government more control over you than not.
This isn't quite true. Most concern is about how mundane transactions are tracked. Things like how your grandma giving you $5 could now be tracked. Obviously this won't be an issue if physical cash still exists, but it would if that was eliminated. The other aspect of a digital currency is that it allows for much finer detailed tracking. High precision. This is still useful in our ever increasingly surveilled world.
I don't know how the UK works, but in the US banks don't need to report when the inflow/outflow is <$10k. Meaning that for most people Venmo could choose not to report to the IRS for them (no idea if they do or not, but if they do, another business model could not) because their annual transactions don't exceed $10k. So even digitally, your small standard transactions aren't (necessarily) being tracked. This could even include things like tips for servers. Of course, the Fed has recently been pushing for this threshold to come down to $600[0] with an explanation that this targets the rich who have multiple bank accounts that are amassing millions of untaxed income.
I am actually for digital currencies, but I personally think we need to make them like digital cash. That is, they use ZKP transactions with minimal metadata to produce as anonymous transactions as possible. Surveillance capitalism and surveillance states have been a mistake. We had centuries of tracking commerce with physical cash and have learned a lot about how to catch fraud and theft. While anonymous payments can enable some more theft I don't personally believe that any government needs to specifically track what an individual person is spending their money on.As a data nerd, I'd be perfectly fine if we had some homomorphic encryption that allowed for some anonymized analysis on how aggregates of people are spending their money but I still don't think we should be tracking citizens.
>It's not like the fact that there's a centralized digital currency will give the government more control over you than not.
This is completely wrong. Centralized, programmable digital currency gives the government complete control over how, when and where you are allowed to spend your own money. Its implementation would be the most dystopian possible development.
Just because the government can easily do that doesn't mean it should have the power to trivially do it. There is some oversight right now, as opposed to zero oversight if the government directly owns your money.
This is a fairly major economic intervention if they go ahead with it. The big difference (in the report they refer to this as private vs public money), is that they are proposing to issue the equivalent of cash, i.e. Asset money, "public money", rather than the liability deposits, "private money" that are created by the commercial banks, when loans are created, and removed when they are repaid, or defaulted on. The vast majority of transactions today, use bank deposits, "private" money in this rather loaded nomenclature.
Because Economics has never really come to grips with how the banking system actually works, there has long been a movement there to replaced the current monetary system, with something that doesn't create and destroy money all the time. Amongst other things, I have seen economists advocate for this, because they believe it would mean that their mathematical models would work properly on the real economy.
It is hard to know what the actual economic impact would be, but it is to put it mildly, a little irresponsible to experiment with the production system like this.
> fairly major economic intervention if they go ahead with it
It is, though it’s far from unprecedented. Postal banking was a public banking option [1], albeit with balance sheet separation between the monetary authority and public bank.
> Economics has never really come to grips with how the banking system actually works
This is nonsense. The internet and public having misconceptions about something doesn’t mean we don’t understand it.
No it's not. Different types of money is common terminology. Also, no idea how "Economics has never really come to grips with the banking system" - there's enough research and understanding on this.
Actually no, although I agree there is a certainly a lot of research, creating some horribly flawed mathematical models.
Essentially with respect to the banking system, economics has built on a false understanding of how it works (fundamentally the incorrect claim that banks lend out their depositors funds), and never gone back to fix that with a correct understanding. So we have the situation that the Bank of England published a memo reiterating how that deposit money is created through lending about 8 years ago now, but there are still papers being published with the incorrect understanding as a basis.
And now we have the Bank of England essentially proposing to "solve" that problem by introducing a digital form of asset cash. It will be very interesting to see what goes on the other side of the balance sheet for that.
Coincidentally, Bank of England has a terrific explainer on this exact topic [1]. It gets straight to the point and explains without resorting to jargons.
I really like Mehrling's theories but I think anyone that points to his work should reasonably caveat by saying a) there is not a lot of broad agreement with it in economics circles and b) its describing a system that was dramatically changed by the 2008 financial crisis and the Money View might be found completely wanting before it achieves uptake as a major economic theory.
I've not watched the listed course so this shouldn't be seen as a criticism of it, only as context for the theories broadly espoused by Mehrling.
> there is not a lot of broad agreement with it in economics circles
This is fair.
> its describing a system that was dramatically changed by the 2008 financial crisis
Mherling emphasizes the historical development of central banking but I don't think the Money View is describing an outdated system. The MOOC itself came out after the 2008 financial crises and it does reference Quantitative Easing as a response to the European sovereign debt crisis.
>fundamentally the incorrect claim that banks lend out their depositors funds
Not sure what you mean by "fundamentally incorrect"? If your bank only has $100 in deposits, you simply can't loan out $101. The money multiplier effect occurs because the lent out money is deposited at another bank rather than stuffed under a mattress.
> If your bank only has $100 in deposits, you simply can't loan out $101.
Why not? I think the assumption here is that money is like a physical commodity. If we were talking about apples then of course your statement would be correct. But we're not.
When a bank "lends" you $100 it just creates two entries: one in your current account that says +$100 and one in your loan account that says -$100. The latter is called a liability. There is nothing physical. In fact, the only thing that "exists" are the entries in the ledger. The money is completely abstract and appears only between the time the loan was created and the loan being paid back.
> bank only has $100 in deposits, you simply can't loan out $101
Of course it can. It creates the loan. Capital requirements dictate it must borrow some amount at the end of the day. But when Chase lends you money, it’s literally just increasing numbers in your account.
No it can't unless if it instantly wants to be insolvent when you withdraw $101. The bank can make 101 $1$ loans because it can be confident that the all the debtors won't withdraw their money all at once.
Edit: I realize now that I forgot to specify that I meant a single $101 loan in my original comment.
> it can't unless if it instantly wants to be insolvent when you withdraw $101
No. This is the fundamental misconception alluded to earlier. A bank with $100 of assets and $100 of liabilities can made a $50 loan and wind up with $150 of assets and $150 of liabilities. Deposits are a bank's liability. Every fractional-reserve bank is insolvent in the short run. (This is inherent to leverage.)
More realistic: a 10% reserve requirement. Bank has $100 of assets, of which $10 are reserves, and $98 of liabilities. ($2 equity.) Customer wants to borrow $20. Can the bank make the loan? The answer is yes. It winds up with $120 of assets including $10 of reserves, a deficiency. So it borrows $2 in the interbank markets and winds up with $12 of reserves against $120 of assets. Note that the liability side doesn't even come into play: that's a capital-requirement question, where defining what counts as an asset to what degree is a tomes-thick discussion [1].
That's why we have reserve and capital requirements. Leveraged banking doesn't work without supervision. Because can’t and shouldn’t aren’t naturally enforced.
From my reading of this[1], the 10:1 ratio is no longer required in the USA. The Fed dropped the reserve requirements to zero, so banks can simply loan infinitely without any actual reserve.
There is a long standing misunderstanding about what actually limits the amount a bank can loan out. In (very) rough strokes there are 3 big limits to loan amounts.
- The reserve ratio. This is the amount of reservable (read deposited) cash that is required to be held by the bank in cash equivalents compared to the amount of deposits on their books. This is typically (for instance in the US) a regulatory capital requirement of a central bank to its member commercial banks. But note its only a second order limit on what the bank can loan out as the loans (or investments, or CDS' or bitcoin) on the books are not part of the equation. What this _really_ does is increase the cost of capital of deposits, making them more expensive for the banks to use for other activity. Prior to the pandemic many types of reservable deposits already had 0% ratios and the headline amount was 3%. This is the _least_ important limit on bank balance sheets for loans.
- Another is the regulatory asset:liability capital controls. Banks can be subject to many different regulators, and they all have a variety of balance sheet rules (and those rules encompass many other things like risk processes and other operations) but always banks must keep more assets on the books than liabilities. But! Thats not a stop to lending, because loans are assets, instead thats to ensure depositors are made whole. The stop to lending is the actual balance of assets is also regulated. Those balance of assets are scored both against market risk and credit risk. Too many loans on the books without enough cash will blow those limits up and get them in trouble with their regulators.
- The loan to deposit ratio. This is explicitly what it sounds like, the amount of money loaned compared to the amount of money deposited. In the US this is not actually part of any regulatory regime limiting the amount a bank can loan*. Instead it is a market based limit that the owners (investors/shareholders) of the bank keep track of to understand how liquid the bank is and how safe the bank is as an investment. This is important because depositors have senior claims in the case a bank goes belly up. Currently, investors look for a .8 loan to deposit ratio. During the pandemic the industry was sitting at around .6, which is one of the reasons the Fed removed the reserve requirement. They wanted banks to put more deposits to use in lending so they made it cheaper to do. Banks with high loan to debt ratios very frequently go out of business so have extremely expensive fund raising costs, therefore its something they take pretty seriously.
If you are curious what the lending amounts look like in practice, the last number is probably the easiest to understand and get access to. As I said, the industry sits well below 1:1 on loans to deposits. You can find some that approach 6 to 1 or even sometimes higher but those are typically distressed banks. The central bank reserve requirement is much more lenient than that and always has been.
* Loan to deposit ratios are a part of some regulations about bank size, but only as benchmarks.
My point is that people don't take out loans to leave it in the bank account though. Going with your example, the bank would be insolvent when the customer tries to transfer the $20 to another bank because that would deplete its entire reserves.
> bank would be insolvent when the customer tries to transfer the $20 to another bank because that would deplete its entire reserves
"Transfer" loses its colloquial meaning at this level of banking granularity.
Interbank transfers involve two components: a message and settlement. If our aforementioned bank's customer "transfers" their $20 to another bank, the message would go across SWIFT or CHIPS or whatever, and then the sender's bank would credit the recipient bank's account at the sender's bank. (The intrabank case is trivial.)
If the customer asks for their $20 in cash or to be transferred via Fedwire, on the other hand, the latter being both a messaging and settlement system, run risk emerges. The bank needs to borrow against or sell assets to generate liquidity. (The Fed extends daylight overdraft protection [1], but that's a specific case of its lender-of-last-resort duty.)
But the bank becomes insolvent only when it is forced to fire sell assets or recognize their dubious value. Not when it extends the loan. Nor even when the customer demands their cash. At both those times, the balance sheet balances. It's just exorbitantly levered.
None of this says a bank should do this. Just that it can. In a system where deposits are loaned out, this cannot happen. In our system, where loans create deposits, it can. The former is the toy model we teach in school.
That's another misconception propagate in the textbooks - and you can blame Keynes for this, it was in the Macmillan report that originated the false description. Banks do watch that issue aka "liquidity" very carefully. Part of it is that they work to keep transfers on their books as much as possible, but also borrow and lend to other banks (interbank lending market) to cover short term imbalances.
In the long term... any bank that is careful not to have too many insolvent loans is guaranteed an inflow of money from the capital and interest repayments - some of which will be on their books, and some will be coming from money deposited at other banks, effectively transferring the asset cash back.
It's actually quite an elegant system at this level. Horribly fragile with respect to losses on loans though.
The typical ratio people talk about here loan:deposit. Bank investors get spooked if that goes over about .8 currently. Prior to 2008 it was closer to .9 but the financial crisis caused people to be more risk adverse. A ratio over 1 implies a bank is lacking liquidity. A 10:1 loan:deposit ratio would be real bad. The industry overall during the pandemic was sitting at around .6, which is one of the reasons the Fed removed the reserve requirement. They wanted to stimulate lending. LTD is not typically part of regulatory control (though in the US there are certain controls to make sure no bank gets too big that benchmark to it). Rather its enforced by the market, because equity holders demand it, because they have lower debt precedence than depositors.
Bank assets(loans, investments, cash, etc):liabilities (deposits, borrowed money, trading losses, foreign bank holdings, etc) requirements are covered by capital regulations. A bank with less than 1 a:l would be considered insolvent and depending on the regulatory regime they are part of, might be forcibly put into receivership.
Banks create money through lending, not because they are lending more than they are taking in, but because to the person being lent to, they now have more money. They have both their deposit, and the loan which can be put into circulation now. But they have a corresponding liability to the bank that must be paid over time.
I don’t know how to look up the stats with the Bank of England as well as I do the Fed to check, but here is a report[0] from the pandemic from S&P that suggests at least for the big banks in the UK there isn’t much difference.
Santander and Lloyds are a little higher than you’d see in the big banks in the US at 1.1 Loan:Deposit but NatWest, HSBC, Barclays, and Standard Chartered all sit in the .6-.9 range which is where banks in the US typically like to be.
Maybe your small banks and credit unions operate dramatically differently than your big banks but that would be surprising. It would also be surprising because the Basel accords make it pretty tough to meet your credit and market risk requirements without using deposits to fund loans.
> Banks lend at certain multiples of assets, 10:1.
No this is wrong. They can not loan out more than total deposits. The trick is that if you deposit 100, they can loan out 90. It gets deposited with them, so they can loan out another 80 and so on. (Actual numbers may differ). This is how you get the 10x multiplier.
But they can not loan out more than total deposits.
If they could, why even bother with deposits at all?
This is the classic description found in the economic textbooks. Unfortunately it is incorrect, the system doesn't work that way. (See comments above).
apropos btw. I've never actually seen a banking system that has a 10% ratio, I think that was Keynes chosing easy numbers. The reserve ratio back in his day was more like 20-25%, these days it is down to about 1-2% in most countries, and being replaced with terms like "required liquidity ratios".
They absolutely _can_ lend out more than they take in. They tend not to because their owners are risk adverse and depositors get precedence in receivership. But you can find banks with 6 or 7 to 1 LTD (I’d not want to be invested in one).
You bother with deposits for a few reasons a) banks get a lot of power assuming they’ll play a public good in the form of managing deposits and b) they can earn more using the deposits than they have to pay out to depositors.
Critically, your asset is the loan, the liability is the deposit credit in the borrowers account but you have zero liquidity and are actually done for when they ask for the money.
So you either need to borrow the money from another entity (if perhaps you were better at loan origination) ahead of that, or more likely use owner equity to payout the loan.
banks in the US can borrow from multiple sources to secure funds which they can then lend out. depositors are a major source, perhaps the largest source. are you saying that this is not true? I am not super familiar with the UK system
Ok I'll bite. How does the banking system work? Are you just saying banks create loans worth more than the deposits they have, i.e. they have fractional reserves?
> fundamentally the incorrect claim that banks lend out their depositors funds
Typical arguments against this always end up in "they do lend out their depositors funds" with extra steps.
deposits go to their balance sheets as assets and a liability towards the depositor. Banks do business with their assets and some of that business might put their balance sheet in a position where they can't or won't honor their debt to depositors. At that point whether they "lent out depositor's funds" is philosophical.
It's statistical multiplexing essentially. To create a loan a bank performs the double entry book keeping operation:
[debit loan, credit deposit]
Which creates a loan instrument on the asset side, and creates a matching deposit in the borrower's account. When the borrower repays capital on the loan, the operation is reversed.
Old time banks would have a roughly 1:1 ratio of loans to deposits, these days because banks are also borrowing from other entities, that can ratio can get a bit squirrel.
The banking system and the way money really works started being researched quite recently (late 2000s). They are some specialists, but a lot of economists (and especially those you can find on TV or read in the generalist press, but not only) are still stuck on the pre-2000 vision where the money banks lend is from deposits.
How is fraud in a commercial index relevant to our understanding of money and central banking? Did the Enron scandal undermine our understanding of steam turbines?
How is the interbank interest rate being defined on the fly in-mente relevant to our understanding of some large central banks determining their total credit supply by punching some numbers into a computer ex nihilo?
> the interbank interest rate being defined on the fly
All prices are determined on the fly, certainly day-to-day ones. Libor wasn’t the interbank rate, it was one commercial offering, albeit a powerful one. The Fed Funds rate always was and now SOFR are transactionally derived, which is fundamentally different from Libor, which was never anything more than a survey.
> a finite amount of energy in this universe and yet here we are at "Practically all prices are determined on the fly"
This is a silly comparison. Stars don’t model their fusion output. Particles interact on the fly. There is also no model relating entropy to overnight collateralised borrowing rates.
> calculating physically intrinsic value for a sufficient number of commodities
The sum total positive energy contained in the universe can be calculated and predicted.
>Interbank funds aren’t a finite commodity.
This statement is obviously false and can run into brick walls in practice.
The comparison isn't silly in the slightest. Currencies must be coupled to a finite resource to function; Lest agent A buy all of agent B's gold using practically nothing but chutzpah.
That you think the comparison is "silly" shows limited/magical thinking on the subject.
No, it isn’t, though misunderstanding it isn’t even fundamental to the flaw in your thinking. A couple of banks can create and destroy an infinite amount of money among them with no real effect. JPMorgan credits UBS a trillion trillion trillion dollars at the latter’s JPMorgan account at the same time UBS credits JPMorgan at its UBS account, and then they both undo it a moment later. No real effect. Hell, JPMorgan could create the money with no counterbalance so they could look at it how pretty it is for an indefinite amount of time. Same deal. Regulators won’t be happy, but that’s because of the potential effects of UBS trying to buy the Fed’s balance sheet.
It’s when the interbank market interacts with broader markets that anything real happens.
> What need do banks have for that capability where the capability shouldn't clearly be criminalised?
Banks don't legally have that capability.
The point wasn't that banks do this. It's that it would have the same-real world effect (again, outside regulatory action and law enforcement) as me writing you a trillion-dollar IOU.
You screwed up the answer here in this classic Uber-commodity based economy (which no actual economist has ever proposed outside of thought experiments).
The traditional answer when people go down this path is “what ever the producer and consumer agree the price is based on a currency denominated in joules that can be extracted from an atom”.
By doing so you’ve eliminated all forms of value adding capabilities from your economic system. The paper clip is no more valuable than its unprocessed atomic components, which is clearly not how real value is derived (or your currency is completely divorced from value).
> it's accounting related rather than technology related
Precisely. The accounting scandal has as much to do with the underlying technology as the Libor scandal does with our understanding of the mechanics of banking. Nobody informed walked away from the Libor scandal rethinking the fundamentals of banking in the same way chickens didn’t get bioengineered in response to chicken Libor.
Whataboutism. It's not about STEM a lot of which is abstract and of no direct consequence (especially where there is no consensus) but about something that can impact society and livelihoods directly in unknown ways.
Can someone with optimism and enthusiasm about CBDCs enlighten me how will this NOT devolve into a totalitarian dystopia with "programmed" money that can control the population down to the individual level?
I find it intriguing that this kind of project will plausibly be the true legacy of the crypto community’s efforts. This is both ironic and tragic as their intentions were the opposite in the wake of the 2008 crash.
I think it’s also related to the lack of trained political scientists in the crypto movement. A first year undergrad is taught that real political power comes from whomever has a monopoly on violence. In this light crypto was always doomed to fail in this way. It had little to no affect on the underlying real power. It only worked 1 later up (monetary supply / taxation / etc.).
Money in my bank account cannot have an expiry date, which is something that would be possible with this new digital currency. The bank cannot limit where I can spend it, at least not as easily.
To be clear, that's a tremendous concern, but it doesn't have any connection to crypto. The reason that the money in your bank account can't expire is because if a private bank tried to do that, it would trigger a bank run - everyone would withdraw their funds as paper, or transfer them to a different bank. The reason the CBDC is different is because there cannot be a run on a central bank as the issuer of currency, and it alone can assert that its unit of account is a legal replacement for paper banknotes. So it can establish policies like an 'expiry date' for deposited funds, which a private bank could not (at least, not until the central bank does first).
Banks certainly can limit where you spend your money though - again, with the exception of cash withdrawals.
Your original point of contention was that CBDC isn't even a cryptocurrency. It is presumably using the tech that was built by the crypto community, like smart contracts.
Why would you presume that? I think it's much more likely to use the same tech that banks and credit cards use for their own bookkeeping. "Money with an expiry date" is in line with line-of-credit products that banks already offer, and taken to its continuous limit, is simply a negative interest rate.
There's no need for them to use smart contracts. Why would you need a self-enforcing contract if you're the guy with monopoly on violence who's enforcing everything in the first place? Smart contracts are an attempt to solve the issue of decentralized trust; this is literally the opposite, an attempt at hyper-centralization.
This seems odd to me. The "money" you have in your bank is already purely digital, a fiction. It's not as if you go to and from the bank carrying physical notes and leave them in a box you control.
If your government wants to take away "your" money, they clearly have the technical ability to do it by compelling the bank to freeze your assets. Likewise, that bank you are currently trusting so much could readily shave a couple of zeros off your balance.
There is absolutely nothing technological stopping any of this.
For the shared fiction of "ownership" of intangible assets to work, we are all at the mercy of one thing: the rule of law.
Certain people have been pushing for digital money for decades, since long before Bitcoin was invented. Bitcoin was the culmination of a quest to find an alternative to that future that was already developing, not the inspiration for that future.
The legacy of the crypto community is the Bitcoin blockchain. Blocks are still being appended. It will outlast this instrument of financial oppression, as well as the UK itself.
> The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
If you need an undergraduate course to explain that a monopoly on violence is what bestows power to a group, you probably aren't a scheming mastermind who is going to rework all of the systems of society.
Government is the monopoly on legitimate violence [In the US defensive violence* is also legitimate by the public, but gov holds monopoly on initiating violence]. They are a laughable distance from monopoly on all violence in their jurisdiction.
* As noted below, defensive violence against illegitimate initiators of violence [<- edit]
How does that work if you're held at gunpoint by law enforcement? Even if you know you've done nothing wrong, and are e.g. a victim of systemic racism?
There are lots of minorities that have chosen to shoot back on the way out when they know they're going to be gunned down. It still holds the government can't possibly own all the violence.
Because the crypto space are just scammers. They barely know anything
People working on Bitcoin are very aware of this and it has been extensively discussed this in the last 10 years and taken into account even by Satoshi
I don't like CBDCs but suspect in practice it wouldn't be very different to Visa/MasterCard duopoly. Mostly widely accepted except for some frankly quite random exceptions.
You'd imagine legal protection of this should exist just the same as it exists for assets now. Eg if you get a speeding fine you are contesting (or something hing more nefarious, say you're a journalist reporting in corrupt government) the state can[not] just confiscate your property without a court decision.
I was about to write "cannot" but then remembered Civil Forfeiture in the US. But my basic point is, I think most.l likely this wouldn't change things too much in practice.
>l likely this wouldn't change things too much in practice.
You are significantly underestimating how much of the day-to-day economy happens in "under the table" cash transactions (doesn't even have to be cash, some unsophisticated casino-chip setup like Venmo or Cashapp works as well) that wouldn't stand up to the kind of scrutiny afforded by a CBDC system.
Hmm, well, true. I guess I don't have much sympathy for the kind of industries that couldn't stand up to scrutiny.
There are also fairly benign cases of cash-in-hand industries like builders etc., dodging tax by taking cash payments of the book, good question how that would evolve.
You hit the nail on the head there btw, it would lead to a shadow economy based on some other medium of exchange, perhaps crypto. Except... How do you buy your crypto in the first place? Surely not with CBDC..!
>I don't have much sympathy for the kind of industries that couldn't stand up to scrutiny
In practice, what this means is that a great many industries (restaurants, construction, anything where immigrant labor is popular and viable, etc) have found a way to elide our — I'm speaking from a US perspective here, this may be different in the UK — sclerotic bureaucracy. Many things would become much more expensive with the introduction of a CBDC.
Also, this means that you're trusting the government to perfectly delineate the bounds of an acceptable life. I don't...
> Also, this means that you're trusting the government to perfectly delineate the bounds of an acceptable life. I don't...
So my main point is, I trust the government's inertia and inefficiency much more than its good intentions.
Let's say the govt has some evil plan to control people's spending, or try to eke out illegal transactions by sifting through their detailed accounts. Who is going to implement this, as in code up? In Europe at least, some underpaid coders who enjoy a 30h week instead. It will be designed and assessed by multiple committees, be hampered by legacy databases, lack of CPU time, and anyway the people actually in charge will not understand the technology, and have their own objectives, which will presumably be to move on from an IT project.
This is not meant to be mean to people who work on such projects, I'm sure there are many talented and dedicated people there but I think this is the environment they contend with.
Of course in US this might get outsourced to Palantir or someone like it and they would just maximise the true positive rate at all costs...
What this means in practice is that it won't eke out all illegal transactions. It just means that the thunder will strike at random, still increasing the risk (and thus the costs) for everyone involved, and deterring a lot more people than those who are immediately affected. It will also cause problems for people who aren't even doing anything shady due to false positives. We'll rant about it like we did about the no-fly list, but once the system is in place, it will be impossible to remove it. So it'll just gradually become more and more pervasive and oppressive over time as various politicians come up with different strawmen to attack.
There is also the idea with banking that I am trusting the bank with my money but I do have the option to withdraw the funds and put them under the mattress.
At least in the US, the idea of eliminating the ability to withdraw an account is absurd.
That form of money will simply never be widely used in the US. I believe the digital yuan already has this problem of just not being used enough.
From the other side of the argument, would you see a future in the next decades where cash is still relevant and significant amount of money can change ownership completely anonymously?
This might still be true for some countries, but most of us are already in a world where paper money is a “just in case” artifact and the gov could trace every single monetary transaction in the last 10 years.
The real fight isn’t on clinging to legacy systems, but to get safeguards baked in the new systems and have governments that care a minimum about their citizens.
I mean, you’ll never win again your gov. going full berserk, or at what price.
> From the other side of the argument, would you see a future in the next decades where cash is still relevant and significant amount of money can change ownership completely anonymously?
No. Also, I see CBDCs as a further step along this trajectory. Even more control. Even more granularity.
>The real fight isn’t on clinging to legacy systems, but to get safeguards baked in the new systems and have governments that care a minimum about their citizens.
I agree. Though I'm afraid human psychology is not compatible with the idea of "safeguards". As long as there is a 0.0000001% chance that this will help catch some pedophile or drug cartel, I bet there won't be widespread push for safeguards. Much like how there isn't any with internet surveillance or facial recognition in public spaces.
Naturally you might be asking, so what do I propose to solve this. To which I answer: Nothing. I don't really see a way out of the hole we are digging right now.
I somewhat optimistically see two different vectors that could move independently:
- untraceability: it’s probably out of the window. I don’t know how much we still had, but with full digital money everywhere it’s dead and buried.
- practical privacy: could probably be saved. It’s hope more than anything, but just as we currently don’t have a social score system while technically all the pieces are in place, I think digital money would stay in the same status quo as long as we keep the same social values.
Basically, we already have safeguards against widespread abuse of our digital systems, otherwise we’d already be in the same social state as China, I don’t see any technical barrier to that. The question would be on wether we can preserve that going forward.
In Cashu, a mint is a single custodian, while Fedimint is designed around a multiple federated mints in a multisig. Both issue e-tokens signed with blind signatures. Both of them also integrate with the Lightning network, so users of the minted cash can make use of the rest of Bitcoin ecosystem for payments.
Yeah this is why I hate food stamps. You can literally go to any hood, walk in front of the grocery store, and there is a burgeoning black market for the stamps (actually EBT card). They function as (discounted) cash for people who want them to be cash.
Just give the cash to everyone instead of this ridiculous failed program with overhead to make sure it's just spent on food. Families actually spending it on food would have more money then because you could cut the overhead costs and pay it out to everyone.
Think of it like Android vs iOS. Android has the ability to sideload apps. The vast majority of users never even enable that, but when you need that escape hatch, it's there.
It seems to me that CBDCs cut out a lot of the friction that currently prevents people from moving towards more interesting and decentralized payment infrastructure.
Any system backed by math seems to me to be strictly better than any system which is not backed by math. Legacy banking infrastructure is a dangerous mess, and needs to die. To me, the acceptance of CBDCs is an admission that the old ways are failing, and a crypto backed economy is the future. CBDCs will still need to compete with crypto assets already in existence, but at least now everything can speak the same language.
But the current legacy system is an evolved standard. A drop-in replacement is likely to introduce a lot of unintended consequences, however beautiful in theory it may seem.
There are actual, visible consequences to trying to keep the old dying system alive. It's hopelessly broken, and more important, unsustainable. For it to truly be a product of "evolution", you have to let the broken parts die.
I wouldn't necessarily call myself "enthusiastic" about CBDCs, but I can certainly give some reasons why I find this proposal to be "fairly reasonable".
Firstly, they start off by saying that they don't think it's currently necessary and that they are just looking to the future. They then talk about the current state of affairs with more transactions being made digitally and more private entities offering some sort of online wallet. Most of these entities are not British in origin and they state that if the situation were to arise where a majority of the countries "cash" transactions were controlled by a foreign entity then this could constitute a security risk. Now, I am a very long way from being a flag waving nationalist but even I can see the sense in that.
Secondly, their proposal look fairly reasonable to me. I may be misreading it horribly but as far as I can tell the BoE is proposing to be an anonymous transaction layer. The diagram specifically states that they will not have any personal information associated with the wallet. It looks like the BoE would just hold an anonymous wallet with a GUID and a value. The PIPs have your user details and GUID. When you make a payment from your wallet to some other wallet the PIP just sends a request to the BoE to transfer a sum from one GUID to another and the BoE never receives any information on the payer and payee.
Because of this, it will be pretty difficult for the government to prevent any particular person making a payment, or to control how someone makes a payment. There are a huge number of private entities that will have the necessary status to get clearance to access the API, I am sure. Can you imagine the UK government trying to bully hundreds, maybe thousands of companies - some not based in the UK - into preventing payments to one person; and they would have to cover all entities because otherwise the person being targeted could just change wallet providers.
It could still potentially turn bad, but it looks to my (admittedly not highly experienced eye) that the BoE is trying to design a system that is reasonably resilient to the type of tampering and control that many people fear.
I don't have optimism or enthusiasm for CBDC, but it seems like it's bo different from the system we have now. All transactions are already digital, tracked, reported, and can be intervened in by your government. So what changes? The money system of the world is a series of computer programs run at banks. CBDC would just be changing those systems to run... blockchain algorithms. It's actually quite pointless to apply blockchain to something thst is inherenty centralized (which is why I have no optimism for CBDCs, they're a waste of everyone's time).
At least in the US, I just don't think this will ever work. It is ultimately only in the interest of the central bank. There are really no other participants that will be clamoring for this.
I am pushing 50 and I just can't imagine I live to see the day I can't get cash from the bank when we still have absolutely worthless pennies in circulation. This is such a fundamental change to money and banking I just don't see it being widely adopted.
People who lived in Warsaw pact countries where you could only buy meat with a "ticket" would disagree with this. There is a very real desire in the ruling class to be this invasive.
There is an increasingly popular sentiment in the West that dealing with income inequality and climate change requires an economy that is planned to a significant extent.
There's a little dichotomy here. If you try to control the population as a whole "head-on" you'd get decent backlash, especially in countries where such moves have been rejected.[Anecdotally i can speak only for EE] However if you try to convince the masses at an individual level, (i.e a bottom-> top approach) you can have more success, assuming you do this in a paced manner and not rush the tyranny (because that would be obvious). Nowadays the latter approach 'works' because most people have low attention span and such grifts go mostly unnoticed, or at least enforced with pretexts like security, protect the kids, etc.
The gov. vs the individual is an uneven fight. The same cannot be said about the gov. vs the people.
Up side is not to have to deal with payment processors, banks and so on, but single hopefully free or tax paid centralised system.
And I don't see worries too much as most of the bad things can already be done, or simply legislated on existing institutions by governments. Nothing actually stops at least with digital money from these things being done.
No. The aspect of programmable money is currently missing. Also with cash being a viable escape hatch, I'm quite okay with the pros and cons of the current status quo.
What I'm worried about are the new proposals and the gradual erosion of cash as an escape hatch.
I did have an experience of having an international wire transfer denied and my account forcibly closed by a US bank because the name of the recipient matched someone on their prohibited person list. They did admit that it's not the same person, but didn't seem to care - my impression was that they were much more concerned with staying "on the right side" of govt regulations than they were about losing a customer.
Is that an example of a totalitarian dystopia? Not really, but it's not "the land of the free", either. I'm thankful that technology like BTC (or better yet, Monero) exists so that this kind of bullshit is merely an inconvenience and not a blocker.
> CBDCs devolve into a totalitarian dystopia with "programmed" money that can control the population down to the individual level?
How is it that Central Bank crypto will lead to a totalitarian dystopia, while BitCoin, Eth, Dog Coin, FTX coin etc are libertarian projects that will save the world?
CBDC's are not cryptocurrencies. Cryptocurrencies are decentralized and implemented by various foundations with open source protocols. CBDC's are planned and implemented by a central bank.
And maybe (dont kill me for this) some people need an adult in the room on occasions.
Maybe (again, hold yourself back) money given by the state should be spent in supermarkets, not on disco biscuits. A degree of control over that doesn't sound bad at all.
>And maybe (dont kill me for this) some people need an adult in the room on occasions.
To some extent I agree. The problem is that historically the limit of this state control was technology itself. Except now we are far too advanced to keep technology as this limit.
Money given by the state is an entirely different thing. If you need the state's money, you are ought to play by it's rules.
What I'm worried about is the state meddling with personal financials with pinpoint accuracy.
We already have technology for that. UK Gov gave a contract to Sodexho ages ago that limited what the user was allowed to buy. Not sure if its still in use - one problem was limited number of retailers who accepted the card.
(For those unaware, 'disco biscuits' is slang for Ecstasy pills, I believe).
Sure, so it seems reasonable to prevent people spending benefits on drugs. However is there not a slippery slope towards preventing people buying (say) unhealthy food?
I can imagine some 'luxury money' that can be spent on anything and 'basic money' that you can't use to buy a pack of crisps or a bar of chocolate, only carrots and apples...
>I can imagine some 'luxury money' that can be spent on anything and 'basic money' that you can't use to buy a pack of crisps or a bar of chocolate, only carrots and apples...
This becoming a reality in my lifetime would convince me that time is a circle. My country had "dollar shops" before my time, where you could buy western luxury goods with foreign currency. Which was basically unobtainable for the average citizen.
Ok, and then it goes to alcohol, sugar, meat, and fuel as items that people can't help themselves to stop buying?
I mean, this is what consumption taxes do. A tax on sugar makes it more expensive to buy a sweet drink, so you can buy less of them for the same money. By putting it into the programming of the money, you make the control more precise - you can only buy 1 sugary drink a day, for example.
When I read comments like yours I can't help but wonder if sheltered naivety (from living under somewhat reasonable governments) or ulterior motives leads to statements like this.
Would you agree to your town council deciding what things you can buy with your wages? No? Then why is an even more distant institution any more competent on that front?
Of course not. But these are long term concerns that are very real. Too much convenience can very easily take away the frictions that allow a governing authority to act. These are uninintended consequences involved in displacing a legacy system.
And just who is going to set the rules where money given by the state can be spent? That is suggestive of a literal nanny state, and government dictats always introduce a certain arbitrariness on the level of individuals. The government cannot save us from ourselves, but given enough power, it will always try.
> Embedded finance is an innovation that could shape the retail payments experience. This is where financial services, and in particular payments, are integrated into another industry’s service, function or feature. Examples include, ‘one-click’ purchases of goods via social media platforms, ‘in-game’ payments or, in the future, marketplaces and transactions in the metaverse.
Does the author question that or realise what they're writing at all, or is it just a case of researching and regurgitating buzzwords? 'The metaverse'... it should be a defined term, and then removed from the document because they realise it doesn't mean anything, or that you can't define it in a sensible way that '[future] transactions in the metaverse' isn't just me shopping on amazon.co.uk today.
I do slightly envy working on something with 3y of technical design (after a year of research to give it the go ahead) before anything gets built though. Perhaps that's too much, but a middle ground, or I envy some aspects of it.
From what I've seen so far, 'shopping in the Metaverse' means 'like Amazon, but in 3D!'. So, filling a virtual shopping cart (with virtual wonky wheel?) with virtual items in VR...
I could be wrong, but like many things in a Metaverse, it seems not just pointless but actively worse than the experience of '2D' shopping in a normal website.
Yes, but it's just not a relevant distinction for the purposes here is it? It's just online/in-app payments, the way the website/app is rendered is completely irrelevant.
Totally agree :) I don't see any distinction between buying products in a Metaverse or other similar VR environment, and clicking on 'Add to cart' in a website.
Indeed there is often no difference between buying online and IRL. If I go into a physical store and buy something to be delivered, this is rarely different to doing the same online. Fraud is a possible distinction, but otherwise ...
I think the distinction, at least in Facebook's version of it, is that you're already in VR for whatever (work, social) and don't have to turn off the headset and go to a different site to do the shopping. Even if it's Amazon in VR, they get to keep you in their system.
I think you're on to something. A VR grocery store that's perfectly curated, linked up to Instacart. A search feature that teleports you to the exact aisle. A variety of weapons that allow you to eliminate products you hate, and hidden power-ups that give you 5% off the order. Goat/Zombie mode?
No comment so far has touched on the big issue. This is a direct competition to the big turtle the retail world is sitting on: Visa and Mastercard. They're taking a cut out of everything that happens, not doing a whole lot of innovation, and have exactly the high degree of control people are fearing in a totalitarian CBDC. They'll very likely dislike this and will probably lobby against it (well, as much as what entities with their net worth can be said to "lobby").
Visa and Mastercard are issued through a multitude of providers. OBDC will have central control. It is beyond me how anyone can argue for that, after seeing again and again how governments fails in almost everything repeatedly. At least have two options to chose from.
Worst-case scenario, in the dystopia we seem to be heading towards, employers or governments could control what the employees/peasants are permitted to spend their money on. I could imagine something like:
"At least 50% must be spent in your local district of your '15 minute city'. Purchases of alcohol, meat, and fossil fuels are prohibited. Unspent currency expires after 30 days and cannot be rolled over to the next month."
"Only senior management and above get paid in 'unrestricted' currency."
>in the dystopia we seem to be heading towards, employers or governments could control what the employees/peasants are permitted to spend their money on.
Food stamps are a handout. They are gained from agency, but existence. Should we limit people's ability to chose their outcomes that result from their own labor?
They can already do this at any time without CBDCs. They just need to pass a law that all payments must he reported to the government. And then they can, at their leisure, arrest anyone who broke the "50% must be spent in your local area" law.
According to the PDF, the digital pound is issued by and backed by the bank of england and as such is classed as 'public money' in the same way as cash. You don't need to go begging to a private institution for the privilage of holding a bank account to hold your 'private money' which is effectively backed by the private bank. Private bank goes away, private money goes away. If private banks decide they don't like you any more your life becomes very difficult.
As physical cash goes away the digital pound is meant to plug that gap, plus a load of other things I probably don't understand.
Only need to look so far as Canada for financial supporters of a protest movement getting cut off from the financial system in midwinter. Now imagine that was centralized and could be done without informing anyone outside the central bank.
the broader point here is with digital money things that would require discretion become automated
which is the dystopia people fear
think about it, the vast majority of people break speeding laws. we are okay and on good days trust the cops to stop reckless drivers but let the morning commuters go.
I do worry about that as a general point. We're all guilty of something random, in the future it'll be possible to find out exactly what by running an sql query against some huge govt database. And when we're all guilty of something it gives massive leverage against us.
I'm sorry, I fail to imagine how this dystopia people are talking is any different than the current times. I feel people are assigning _way too much_ importance to the changes this will bring. Kind of how people assigned way too much importance to the changes cryptocurrency will bring. When crypto was young, really young, a lot of backers saw in it the brainchild of their favourite political system, the thing that will save them for tyranny. They just impregnated it with their wishes and desires. Well, I think that was silly.
And in the same way, I think impregnating cbdc's with all their fears is just as silly.
In the UK, there's the National Savings & Investment bank which is fully backed by the government. Any savings there aren't capped at 100k EUR (GBP equivalent) like other banks. This digital pound sounds a little bit like an extension of this imho.
People on the lower rungs of society can get access to free banking.
In the USA at least, it can be difficult to get a bank account if you don't have much money. And since companies don't like writing checks, people working jobs at the lower end of the economic latter have to get special "paycheck cards" that extract relatively large fees for the service they offer.
Imagine making poverty wages, yet 2-5% of your paycheck is taken from you as a fee for not having a bank account (which you don't have because you make poverty wages).
In theory. In practice even with a valid US passport in hand you won't pass KYC without proof of address. To get an address costs either money to get a place or lots of time spent with social workers, assuming they're even accessible, to get the legally valid evidence of a homeless shelter as your address.
Additionally, when I was living in poverty at least I often was living in legally precarious housing with no mail access and landlords that didn't want any "on-the-record" evidence and thus no proof of my address. KYC is a big expensive burden on the poor that blocks banking access.
Tell that to people who spent years unbanked, cashing their paychecks at a van that would pull into the factory parking lot on payday, like me 20 years ago.
> What advantage would I have as a user of a "digital pound", compared to a regular bank account
Two largest groups of users will be:
1. People who don’t have access to pound bank accounts (folks who live abroad).
2. People who effectively give all this control and info away already by not using cash ever.
Note that we are in an economic battle/war right now with regards to crypto/digital currency in developing countries. The digital RMB, digital pound, digital USD, and perhaps others will be an efficient way for the currency distributors to influence/control foreign populations.
It wouldn’t surprise me if the west wins most of these battles simply by offering colonial digital currency with which folks can conduct transactions.
Since CBDCs came about as a direct response to the rise of Bitcoin, I wonder if cryptocurrencies’ most lasting contribution might (paradoxically) be the acceleration towards full government surveillance and control over the populace’s financial transactions.
CBDC transaction history isn't public. And only one government can see it. They will also need a warrant for that.
Bitcoin and most other cryptos are much worse, because their blockchains are public. Everyone can see every transaction. No warrants required or anything like that.
At least the people are able to vote for those who write the rules for the government. If people want to ensure a warrant is required, then they can push for it by voting for candidates that will enshrine that requirement into law and put into a place audits that ensure compliance.
It's a lot more difficult to get the same results from a private entity who has a financial incentive to skirt laws.
It is not safe to assume that a government will always follow its own laws or the will of the people. CBDCs allow a great deal of power that isn't so easily accessible now. The only certainty with people is that the temptation of power is irresistible. Attempts to use CBDC for control will be resisted but persistent. Some attempts will be accepted as concessions or to satisfy calls to catch "terrorists" or "pedophiles". Slowly but surely you end up at a place where the government controls who gets to spend and where they get to spend it.
What I'm hoping comes out of this is some backstop for the ~4 million Brits with no bank account in our increasingly cashless society.
What I'm worrying will come out of this is pound-on-blockchain with no real effort to serve the currently-unbanked.
Also worth pointing out that the Pound (like every major fiat currency) is already digital: my bank account is stored in a computer, my payments are all electronic. Sure we still have paper notes but banks aren't backing their deposits with a big stack of those in a vault anywhere.
> What I'm hoping comes out of this is some backstop for the ~4 million Brits with no bank account in our increasingly cashless society.
Izabella Kaminska (ex FT-journalist) had a good take on this on her podcast or website [1, 2] (I forget which).
If this is for _all_ unbanked individuals, then it must also include people banks don't want anything to do with right now, like criminals and other people who don't currently pass KYC or AML checks.
> What I'm hoping comes out of this is some backstop for the ~4 million Brits with no bank account in our increasingly cashless society.
That's the intention yes
> Also worth pointing out that the Pound (like every major fiat currency) is already digital: my bank account is stored in a computer, my payments are all electronic. Sure we still have paper notes but banks aren't backing their deposits with a big stack of those in a vault anywhere.
They are drawing a distinction between private money - issued by banks which may or may not like you - and public money £20 on paper which anyone can hold. Digital pound = public money.
> They are drawing a distinction between private money - issued by banks which may or may not like you - and public money £20 on paper which anyone can hold. Digital pound = public money.
What happens when it becomes popular for the government not to like you because X is in vogue?
Yeah even if the rules are in place now. Down the line - trending on twitter @ someone up for reelection - joe blogs did X why are you supporting him by allowing him to continue using digital cash?
Britain is shutting down their mobile payment system on 7 March: https://paym.co.uk/
The equivalent service is widely used in Scandinavia and some other countries. I can pay a friend or make a purchase in a small shop (or a big one) without needing to know bank account numbers.
Yeah, this has been around forever and I don't know anyone who ever used it.
Bank transfers are free and fast here, if you gave me your bank account and sort code, you would have your money pretty much instantaneously.
In fact, when I buy goods from Facebook Marketplace, people mostly want a bank transfer and you can send the money whilst you're standing there, and they'll be able to confirm they got it before you leave.
I see your point about using phone numbers instead, but oddly I'd rather give someone my account number and sort code rather than my phone number :)
I used it years ago, though it was introduced to my circle of friends by a Swedish guy who worked in IT at a bank. The banks hardly advertised it, and soon after launching it they hid it away in the app/website interfaces.
We mostly already had each other's phone numbers, and the PayM process would confirm the name of the target account -- so there was confirmation the payment was going to the intended place years before this was added to Faster Payments.
When I'm here I use the Danish one (MobilePay) at least a couple of times a month. It's the default way to split the bill for a restaurant/bar/tickets among friends, to collect money for a gift for a colleague with a new baby, or to pay a stranger for second hand goods or their spare concert ticket. If there's the option, I'll use it to pay for goods and services online.
MobilePay has always been much easier to use.
1. Open app or touch NFC tag (when paying in a shop, in which case skip to 4).
2. Input amount
3. Choose previous recipient, choose phone number from phone contacts, type in a new phone number, or scan a QR code (typically a business).
4. Amount and recipient's name is shown, swipe to confirm.
5. Confirmation page shown (useful for strangers), recipient gets a notification.
I can see how this is a problem for a few very small groups (very recent immigrants, people without identities, the homeless). But 4m people seems like a huge number. Are they mostly children or is there some other group that cannot get an account despite making a reasonable attempt?
I think this is a side effect. To use digital currency I assume you’ll need some kind of account, as it will probably rely on some stable identifier. Baking identification in a device (a card for instance) could be an alternative, but past some amount it would probably be impractical and I’d see banks limiting the amount that can move outside of them.
Depends on what you mean by “banked” and how it’s implemented.
If for instance, as a bare minimum they can get money from their job transferred in and can pay bills and rent from there, it would already fill the core job of a bank account.
Now I’d assume even the simplest system would be managed by banks as a new product, with technically an account bound to it. A bit like C-Zam, N26 and other “banking light” initiative that euro banks have been trying out lately. But lighter alternatives would sure pop up.
Newer systems have all been lighter than legacy banking. And from a logical perspective, they wouldn’t make sense if they were just a rebranding of the old system.
Newer players also need something scalable to make a dent in the market, so there again the lighter the easier.
Over the last year or so all supermarkets in the UK have installed biometric facial recognition cameras at checkout. It's not subtle either – it's literally a HD video camera in your face.
So I started covering the checkout cameras and covering my face in supermarkets, but everyone thinks I'm overreacting. I guess I don't really get it. Am I suppose to be fine with this? This isn't some passive CCTV system, it's literally a camera pointed at my face to identify me christ sake.
And this stuff happens to me a lot here... I often refuse to give email addresses and number phones, but I get treated as if I'm the one being obstructive. The only exception seems to be if I'm talking about Facebook or Google, then people suddenly seem to care about their privacy, but in the real world there's no regard for privacy at all.
Oh, that's what those are!
I thought it was just a crappy video feed to try and deter theft. Much like all they eye symbols on security camera warning signs. "As if they'd actually get some poor sod to sift through all the footage to prove that you didn't pay for a packet of crisps!"
I'm not sure it's 100% clear what they're being used for or what the plans for them are. What I know is that when I walk into my local ASDA I now appear on a screen with green box around my face like this: https://www.blackpoolgazette.co.uk/business/asda-denies-usin...
As you can see they're denying that this is used for customer identification, but who knows. It seems extremely suspicious to me that they'd go so far as to implement AI to identify individual faces, but then do nothing with it.
What I do know is that there is a company called X5 in Russia which has similar self checkout cameras and they do use this for identification. And recently ASDA and other Supermarkets have partnered with Yoti (a UK digital identity company) to use their checkout cameras for age verification,
https://www.yoti.com/blog/yoti-digital-age-verification-tria...
Imo it's clear where this is heading regardless of what it's being used for exactly today. And it's possible they might already be using these cameras to identify previous problematic customers, but I might just be paranoid. I don't think anyone really knows what individual supermarkets are doing with them today and no one really seems to care either.
No, the parent poster is referring to cameras that are positioned at self-checkouts. Self-checkout is problematic because of theft, and so cameras are a great way to discourage theft, in the same way that (fake) cameras have been used for years. If people are being watched, they behave better.
I'm skeptical of the claim that they're engaging in facial recognition. I guess, at some point, it's possible, but right now, given the widespread use of the cameras across every supermarket, it seems very difficult to imagine that all of these supermarkets have implemented a facial recognition system at the same time. Rather, they've all realised, if you put a camera at a self checkout, it'll probably reduce theft. That's why the screen is there, because you can see yourself being recorded, if it was for facial recognition... why a screen at all?
Typically a self-checkout will have a camera if it does not use a scale, whereas cameras are less common at the self-checkouts that use a scale -- and so it's harder to steal. That's my experience anyway across a few different supermarkets in the UK.
Some of us mind; personally I'm lost on how to deal with it. Speaking to my MP doesn't seem to have any effect: they mostly tow party lines. Voting for parties I feel more aligned with doesn't work: they're too small to move the needle. We've been caught in a two-party system for as long as I can remember (since the 80s).
the UK population is quite authoritarian, and there are a significant number of the electorate who are quite happy to suffer enormous privation if it means that people in the out-group suffer worse.
Like what, for example? People always mention cameras but most of them are in private hands and if you ever want to check them as you had your bike stolen, you'll quickly notice that none of them work anyway =='
I do tend to agree with you, but adsurd it a little hyperbolic.
This is true everywhere outside of our dev circles. Heck, even most devs I personally know still have a "I don't have anything to hide" and "They track everything anyway, stop resisting" attitude.
Most likely the government will have to ban bitcoin acceptance in order to force people to use the CBDC. Otherwise, it has a hard time to compete.
CBDC:
- restricted use, max 20k savings
- some transactions might be blocked
- linked to your identity/credit score
- validity might expire (not durable)
- a privacy disaster, centralized data will get hacked
- total governance and corporate surveillance of your transactions
- supply changed arbitrarily
- now ownership, account permissioned/granted
BITCOIN:
- no restrictions, unlimited saving
- censorship resistant
- not linked with any personal info
- no expiration, ultra durable
- no personal data stored, can't get hacked
- no surveillance if done right
- supply is fixed and issuance schedule auditable
- true ownership
When Deus Ex imagined digital currencies back in 2000, they imagined a "credits" system, where these credits were backed by nothing and were simply numbers in a computer. BUT, critically, they existed independent of accounts or transactions. This enabled one to "load some credits" on a generic cube/card and use it for payments.
For a game that was so prophetic on all other aspects of ethics and AI and technological develoments that followed, particularly in terms of surveillance, a currency free from transaction-monitoring/intervention was a very big blind spot in their dystopian vision. I wonder if this simply never occurred to Sheldon Pacotti, or if he specifically believee we'd manage to somehow "liberate" money by then ...
Another risk of CBDCs that I hadn't thought of before will be the temptation for governments to (automatically) impose certain kinds of temporary restrictions on people who aren't individually suspected of a crime but who do match some combination of fuzzy location-based, political, religious, socio-economic, ethnic or health-related filters as a dragnet response to certain events (which the public may not even be aware of). They can then remove these restrictions seconds, minutes or hours later, citing system problems (they could easily push the blame on to the people on the other end of the transaction; they will probably make this a condition of operating CBDC services) or maybe even without acknowledging that restrictions have been in place, and with the details of them being subject to gagging orders and National Security legislation.
This could also be gradually smuggled in under ambiguous wording and mission-creep. And then even one major event that made the headlines "that we had the technology to stop!", and which occupied the public consciousness could do a lot to bring people around to the idea that maybe the government should be doing more than just handling payments, and thus changes could be made without announcement once public sentiment had shifted towards tolerating more "proactive safeguarding".
Eagle Eye, The Adjustment Bureau and Person of Interest contain dramatizations of "Glitch-as-a-Service" (GaaS) to alter the probabilities of future-influencing events, e.g. important business meetings.
There's something I don't understand: the current system works great. Cash as well as credit cards. So why change that? If they want money to work in essentially the same way, why mutate a system that is extremely resilient and has been battle tested historically? I can only see a nefarious goal here from there side. And no, I don't believe that their privacy policies will hold any water when the government or police come knocking. Can someone convince me otherwise?
From a merchant's perspective, Blockchain backed money can reduce the cost of moving money. Typical credit card and ach debits/credits take 3 to 5 business days to settle and cost the merchant over 2% to 3% of every sale (higher for smaller businesses). That means we consumers pay Visa and the other big processors 2% to 3% of nearly everything we by online and in store because merchants - of course - pass those fees onto us.
If this CBDC can process payments within a few seconds or minutes (some Blockchains are able to) that's also a huge win for merchants as that means they actually have the funds they need to fulfill orders rather than relying on credit (which also costs $) and having to wait days for all customer's funds to be deposited.
Rapid settling times help cut down on fraud - which itself is very costly to businesses (the cost of which is carried by the consumer).
So by switching to a quickly settling CBDC, businesses can save time and money - savings that can be passed to consumers. Now, whether they ever do that is another question.
Do you think credit card companies are going to willingly evaporate overnight when CBDCs roll out? People will still pay for everything with payment processors and use credit cards.
As a merchant myself, I would get rid of my credit card processor As Soon As Possible if a viable, inexpensive alternative existed. Obviously they'll fight tooth and nail to survive.
> There's something I don't understand: the current system works great. Cash as well as credit cards. So why change that?
Control. If you're of the mindset that there is an upper-class and a lower-class, you're incentivized to create a form of money that makes both permanent. This prevents competition, generational wealth transfer, and guarantees infinite, cheap obedient labor.
The movie Elysium is a great caricature of where this will lead.
I think the most interesting possibility of a "digital pound" is that it would enable money creation to only be carried out by the Bank of England; it would undermine the ability of regular banks to just create money by issuing loans backed up by nothing more than minimum reserve requirements.
The only positive I see from this is that Britain will quickly miss use this new power, engineering social credit scores and negative interest rates and the rest of the world will see how incompatible it is with freedom and become inoculated against the idea.
CBDC's could change our economies (and societies) fairly dramatically. For better or worse. People should not rush to form strong opinions on the basis of low information and prejudices. Practically everything about them is configurable. This is the time to get informed and act as empowered citizens. Shape them for the common good if possible or otherwise reject them. Be suspicious that the risks can be managed when the regulatory failures are legion and regulatory capture endemic to this industry. But consider also that current systems are just a pile of historical inventions and conventions, there is nothing optimal or stable or fair about them.
Maybe we have different concepts of what "education" means. But in any case, I didn't come here to spew low effort vacuities so here is another go:
Individuals could with fairly minimal technical changes get central bank accounts here and now. That would already change the universe: Currently all electronic money is private bank money, only as good as the credit of said private entity, which in turn depends on the types of risks it might be taking while you waste your time on HN. With CB accounts some electronic money is sovereign money (like cash). It may get inflated but it will never default. Already that simple "savings" window can upend banking as we now it. Individuals transacting in sovereign money and any other features are all on top of this.
If this were issued on multiple blockchains, ranging from a government-run permissioned chain, to public blockchains like Ethereum, and if this didn't accompany any elimination of physical cash, but acted instead as an alternative to it, then this would be strictly an improvement in the utility of government-issued currency.
The worry is that it would be a substitute/replacement for physical cash, which would mean a massive enabler of private and unregulated economic interaction being eliminated from an already too surveilled/centralized/rigid society.
Blockchain technology, which underpins many cryptoassets (for example Bitcoin) also
represents a major innovation. This introduced digital assets supported and distributed
in a peer-to-peer fashion, backed by cryptography alone and stored on an immutable
distributed ledger.
Smart contracts automate business logic based on pre-determined terms and
conditions. The concept pre-dates the emergence of Blockchain and is not exclusive to
any specific technology, but their use has been popularised recently by permissionless
blockchain technologies such as Ethereum.
Developments in smart contracts have led a trend towards 24/7, ‘always on’, automated
markets and products, and a wider world of decentralised finance, or ‘DeFi’. DeFi
applications use a combination of these technologies, including blockchain and smart
contracts, to enable users to buy, swap...
Fortunately the accompanying technical note doesn't talk about it too much.
If we want to keep cash, we need to use cash, and dumb phones, slightly less convenient, otherwise we are running into a world where everything is app-tracked to the penny/cent/micro-payment. Mandatory mobile 'smart=spy' phone next to receive such pounds? Wait until there are 'food only pounds' 'heating only pounds' 'nhs pounds' 'pension pounds - geo-fenced?'. The G is being erased from GBP.
Ah yes, the average UK grandmother is going to open their bank account and see their various asset classes: "food pounds" "entertainment pounds" "geo-fenced liverpool pounds" and keep track of all that.
I find these discussions frustrating because the UK pound (like the US dollar, the euro, etc) is already digital. THe overwhelming majority of pounds in the UK are just numbers in a database already.
So there's no information being conveyed here by saying "lets have digital pounds". Presumably there's a proposal to add or change something, but you've got to open up the PDF and start skimming to even get a hint of it, because the linked headline and summary is just meaningless.
Since the pound is already digital, the obvious path forward is some mixture of a government provided payment app, and/or government forced interoperability between existing payment apps, possibly augmented by government provided bank accounts either for the unbanked or possibly for everyone (cf "postal banking" and "narrow banking").
Looking at the PDF they seem(?) to have something fairly different in mind, but they do a terrible job of explaining why. Or what exactly they're proposing.
It's just exhausting trying to engage with a proposal this vapourous.
> Presumably there's a proposal to add or change something, ...
Presumably the change in question has to be to stop printing cash and minting coins and forbid cash transactions. There may be some cryptocurrency-like features too (sans anonymity), but I imagine that credit card processors won't like that.
A digital central bank currency seems more like a refactoring of an existing setup rather than something radically new.
Since the policies of 2008, bank IOUs and central bank IOUs are basically the same since the central bank backs up all the other banks. 100 dollars held at Bank of America as "this is how much the bank owes me" is functionally the same as "this is how much the fed owes me"
In theory, private banks would've created a diverse ecosystem where bad or incompetent banks would get washed out leading to a stronger and more efficient private banking sector. In practice, they all needed to be saved. The resulting rules like lending standards coupled with existing regulation like KYC means that banks already act like arms of the central bank.
It's possible a CBDC just cuts out the middlemen so there could be benefits like lower interest rates on loans. There is concern with privacy and centralization of course, but that's not specific to the CBDC idea or tech and has already existed in a form for some time (e.g. canada trucking bank freezes)
I'd be really receptive to CBDCs if the blockchain was completely open with no impediment to chain analysis, and all elected politicians or those employed in the public service above a certain level were restricted from any other money for anything. With a stipulation that for them, as much as buying a coffee with any other form of money would mean automatic let's say 5 year minimum sentence with no way to wiggle out of it/get pardoned/get early release/...
Aside from obvious benefits, it would also ensure CBDC implementations are really convenient to use, and any issues are resolved pronto.
I met a crypto dev in a bar last summer. He was very secretive about what he actually did. After a few rounds, the only bits I got out of him was that he was working for EU on a secret project that will make cash obsolete.
The pound is already digital. Printed or minted currency is a small minority of the entire money supply, regardless if how you count the money supply. Most of the base currency is a digital record at the central bank.
If you are interested in the topic I can recommend Layered Money by Nik Bhatia [1]. I just finished that and it explains how the different currencies evolved and how where they might go. I'm no currency expert, but it seemed like a good starter book to understand where CBDC are fitting in.
And before anyone says "lightning network" realize that that's like playing catch in your back yard and thinking you're going to pad your major league baseball lifetime stats.
You could also say it's like passing IOUs back and forth with a friend.
The lightning network what? You can't just repeat something and magically expect it to work. It has been 8 years, what problem is it solving? Transactions still have to make it on the chain to count.
No other cryptocurrency has this problem. Why would be people try to go through convoluted nonsense to work around a problem that doesn't exist anywhere else?
It doesn't solve that because it doesn't increase throughput on the main chain. Why do you think it solves any real problems and how do you think it does that? So far you just keep repeating the same thing without any understanding of what it actually does.
Just realised they don't seem to mention open source at all. I am mostly positive about the idea, I do not fancy programmable money (that's a layer on top not inbuilt in my view) and yet a government coded proprietary system? Hmmm
An observation: People who are angry about CBDCs are almost all non-technical (certainly not the usual HN programmer crowd). Programmers are generally good at seeing how a system actually works, and we realize that CBDCs don't give the government any new power that they don't already have. Also, we don't get confused and somehow think that a CBDC is going to replace paper money (or worse, and even more cyberpunk magical thinking, somehow think that physical money will become a digital computer with a touchscreen and a mind of it's own, looking for dissidents and giving them papercuts).
tl;dr summary: The paper is not about blockchain just an upgrade of how money is transferred between bank/payments operators customers... a Revolut for the whole country.
Money/Currency rules are the same.
Access to network is the same (customers banks use banks apps)
Imagine all the lives that could have been saved during the pandemic if governments could have forced people to quarantine and vaccinate by turning off access to peoples' CBDC account.
I haven't yet read this publication in full, but last year I did read the House of Lords Economic Affairs Committee paper on the topic[1]. The title was quite telling: "Central bank digital currencies: a solution in search of a problem?" This was authored by Lord King, the former governor of the BoE, amongst others. It seems the current BoE is taking a different course.
[1] https://publications.parliament.uk/pa/ld5802/ldselect/ldecon...