The Wealth Gaps perspective on Central Bank Digital Currencies can deduced from the following two quotes:
Moving on…
Central Bank Digital Currencies (CBDC’s) are a new type of monetary system currently in development by various central banks around the world (Federal Reserve, Bank of England, European Central Bank etc). CBDC’s take the traditional fiat currencies we already use (pound, dollar & Euro) and marry them up with Distributed Ledger Technology (DLT).
Why Bother? Loads Of Reasons…
The Current System Sucks! Remember the last time you sent money abroad? It was probably slow and/or expensive. Technology has moved on and the banking system is run on the back of the Swift payment system which is a bit of a dinosaur. If central banks want actors to use their currencies then they need them to be faster, cheaper and more secure than what we have now.
Bye-bye Bank Notes!
The use of bank notes has been declining for years now as can be seen by this lovely chart we liberated from the Bank of England’s website:
Ever paid for something ‘cash in hand’? That might technically be tax evasion and politicians of a certain stripe have been looking to clamp down on it for years. The removal of notes from the monetary system could put an end to all of that. It could also make the laundering of illicit gains even more difficult although with the lowering popularity of notes we suspect a most of the serious criminals may have moved on already.
Programmable Money!
What if the government wanted you to ‘eat out to help out’ again? Would you? What if they put money in your account that had to be spent on food and drink in a restaurant? What if that money automatically left your account after a month if you hadn’t spent it? Would you go out for a meal? Chances are you would. Has the government just influenced you to do something you would not have otherwise done? Potentially it has. Welcome to the future. Money may be used to affect behaviours and steer the economy in ways never seen before.
Sharing of Data
If the Bank of England is running CBDC software then they may have an unparalleled access to the nations spending habits with a record of everyone’s transactions. This data could be a goldmine for anyone who has access to it.
Competition
Facebook caused a real stink in 2020 when it announced the launch of its ‘Libra’ currency. This was to be a stable coin (low volatility) pegged to a basked of fiat currencies. The idea of Facebook with its billions of users launching its own currency was far too scary a prospect for governments and regulators alike. Facebook was dragged off its high horse and has been designing a much less ambitious project ever since.
Facebook had a great idea but them controlling the information and the coinage was not well received by nation states or their regulators. They may be allowed to provide accounts for CBDC’s in the future but that’s pure speculation at this point.
The Press appears to have taken a position on CBDCs. Each headline below is a link:
Guardian: The UK economy could be transformed by a central bank digital currency
Guardian: Digital currencies pose threat to economy, warns Bank of England
The Times: A central bank digital currency would be historic innovation, says Andrew Bailey
Bloomberg: ECB Says Lack of Official Digital Currency Risks Loss of Control
There are more but you get the jist.
There is a lot of value to be had from CBDC’s for governments, central banks and those comfortable in that system. A faster, cheaper more transparent system is great but the true value of the system should become apparent in time. The BoE highlighted the risk it faces from private digital currencies and as nations have grown accustomed to controlling currency they may not give that power up easily. With slicker operations, programmable money and even more data on our spending patterns we can expect some innovative solutions to controlling the markets going forward.
Food For Thought
What happens to public debt if an entire population moves to a new currency?
Will central banks encourage spending by airdropping CBDC’s straight into our wallets?
Until next time
The Wealth Gap