Cryptocurrency: CBDC's Doomed, or 1984?

[grarpamp]

Central Bank Digital Currencies Are Doomed To Fail - And Here's Why

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As central banks including the Fed, the ECB and (of course) the PBOC
(along with some 85 others) scramble to roll out their own digital
currencies, some naive crypto bros might assume that the financial
establishment and the government have completely embraced
cryptocurrencies. But as we have pointed out before, this isn't
exactly true. The reality is that while they have spoken of 'the
financial revolution,' they have only embraced some aspects of
cryptocurrency.

For example, they have embraced the fact that all transactions on a
digital blockchain can be carefully tracked and monitored, assuming
they are the ones in control of said blockchain. This deep level of
vision and insight would allow centralized financial authorities (like
the Fed) to exert unprecedented levels of control over Americans'
spending habits.

But what impact will the advent of digital currencies have on the
dollar's hegemonic status in the global monetary order? Fed expert Jim
Bianco offered some very interesting thoughts on this topic during his
latest interview with MacroVoices' Erik Townsend, where he offered an
interesting prediction.

First, Bianco pointed out that many of the central banks that are most
advanced in their CBDC projects are members of the emerging and
frontier market classifications. As we have noted before, three CBDCs
have already gone fully live in the past two years: the so-called
DCash in the Eastern Caribbean, the Sand Dollar in the Bahamas and the
eNaira in Nigeria (and, of course, the PBOC is making swift progress
with its "e-RMB").

One reason why central banks in emerging markets are so eager to
accelerate the transition to digital currencies is because many are
growing frustrated with the realities of American hegemony. Even the
IMF (or at least some of its senior officials) has acknowledged that
western sanctions are undermining international faith in the
dollar-based monetary system.

Here's Bianco, responding to a question from Townsend about a
theoretical global monetary system managed by a consortium of central
banks and based on a kind if supranational digital currency.

    So you're seeing the adoption rate, really what's pushing this is
Asia, Africa, the Middle East, knowing that they've been at the short
end of the stick having not to have access to world capital markets,
or to banking services at a reasonable rate. And wanting to have that.
That's why you're seeing the adoption of places like in El Salvador,
and potentially in Argentina, as well, too. Because they have been
shut out of the capital markets, they need the permission of entities
like the World Bank, or the IMF to do certain things. They are
punished if they do things that displeasures, the first world or the
United States, or the IMF, or the World Bank. And so that's why they
want some kind of system like that.

This shouldn't be a surprise to anybody (at least, not those with at
least a base level of understanding of economics). As both Bianco and
Townsend point out, the concept of "exorbitant privilege" is nothing
new.

    What you wind up doing is making it fair for the rest of the world
because one of the problems the current global financial system has,
is it's more of a tiered system that if you're further up the list in
the United States is at the top of the list, you get more privileges,
better, cheaper financing, better access to markets. As you move
further down the list, you get less access, things become more
expensive.

With this in mind, remember: despite the Fed's best efforts to develop
a CBDC of its own, the US would likely do everything in its power to
make sure the type of system described by Townsend above - that is,
one where control is distributed among various central banks, and not
concentrated in the hands of the Fed (and its supplicants) - never
comes to be, since that would eliminate the 'exorbitant privilege' of
the American economy (and create serious problems as the Treasury
would likely be forced to pay higher interest rates on its massive
debt).

But there's another obstacle to CBDCs: the fact that people remember
how the Canadian government treated people who donated to the Canadian
Truckers (they were essentially frozen out of the financial system for
something that was completely legal and normal). Because of this, they
remember how easily the government can exercise control over their
lives via their money. So, presumably, millions of people wouldn't be
comfortable with central banks exercising even more direct control of
the financial system (having wiped out the intermediaries of the
banking system due to CBDCs).

    A central bank, digital currency makes that a lot more efficient.
And so you've heard calls in the wake of that incident, that this is
going to hurt the adoption of a central bank digital currency. Yes,
they may create one. And yes, they might even take on potentially
disrupting their banking system. But will people willingly say I want
to keep my money with the Federal Reserve. And then one day, they
might donate to a group, and remember, this happened with the truckers
back in February. That people donated to the truckers, and it was
perfectly legal, and it was fine. And then the Canadian government
invented a word called retroactive law, that when you donate it in the
beginning of February, to these truckers that was perfectly legal and
fine. But by the end of February, when we decided that they we didn't
like that group, we're gonna go retroactively back and punish you by
freezing your account for doing that activity. I don't want to make it
easy for them. I don't want to keep my money with a central bank
directly in a digital currency. So they've got issues that they have
to resolve the issues are not technological issues. The issues are
more about control, privacy rights in policy that they have to work
through. And so therefore, I think we're still a ways away from seeing
a central bank digital currency, because those issues haven't been
resolved

For this reason, Townsend says, he believes the launch of a Fed CBDC
would be "a big flop".

    And my prediction is CBDCs, issued by central banks will be
designed, first of all, to make it much easier for governments to do
all sorts of crazy things like freeze people's bank accounts, and, you
know, automatically if they say something against the government
narrative, as happened in Canada, as you described. And I don't think
that they're going to be open to a supranational system. So for that
reason, I think what's much more likely is the CBDCs get developed,
and they get launched with a big flop, and nobody really cares.

And both Townsend and Bianco agree: the biggest obstacles to CBDC is
skepticism and reluctance among the end users, since CBDCs will never
be designed with the needs and desires of the users in mind (on the
contrary, they're being designed in accordance to the rules of the end
government).

Bianco offered the launch of China's e-RMB as an example: the PBOC
literally offered people free money to use it, but the currency came
with "all these rules" about how people were required to spend it. As
a result, the program wasn't very successful.

    I absolutely would agree with that. And it's not only the
permissioning too, it's the rules too. Just give you one example, in
China, they'd have issued a central bank digital currency, a digital
yuan. And one of the things that they did with it was, they put on its
a bunch of rules that if you actually bought into this currency, you
were in to use the crypto version, you are airdropped money, they put
extra money in your account. But they put rules on what you could do
with the money, you had to spend it in a certain period of time, I
think they gave you 30 days. And you had to spend it on certain
things, and you couldn't spend it on other things. And even in China,
even though they were giving you free money, with all those rules,
didn't go over very well. People don't like you know, to have all of
those restrictions.

This is why there's so much excitement in the decentralized space:
because users are inherently excited by the idea of a 'parameter-less'
currency, that's beyond the reach of governments and sanctions.

The creators want to do it, because they say, good, we could do all
these rules and permissions. And we could we can affect behavior by
changing the parameters. And the people that would use it say, well,
I'd only use it if you left me alone, completely parameterless with
it, let me do with it what I want when I want it. And that's why
you're seeing people more and more gravitate towards the crypto space
that is permissionless, that is decentralized, so no one controls it
as well, too. And you're seeing the excitement in the decentralized
finance space really starts around what is referred to as stable
coins. And a stable coin is just a digital token that is supposed to
have its value pegged to something else.