Cryptocurrency: CBDC Digital Fiat WARNING BELLS GOING OFF

[grarpamp]

https://edwardsnowden.substack.com/p/cbdcs


Continuing Ed — with Edward Snowden
Your Money AND Your Life
Central Banks Digital Currencies will ransom our future
Edward Snowden
Oct 9, 2021

1.

This week's news, or “news,” about the US Treasury’s ability, or
willingness, or just trial-balloon troll-suggestion to mint a one
trillion dollar ($1,000,000,000,000) platinum coin in order to extend
the country’s debt-limit reminded me of some other monetary reading I
encountered, during the sweltering summer, when it first became clear
to many that the greatest impediment to any new American
infrastructure bill wasn’t going to be the debt-ceiling but the
Congressional floor.

That reading, which I accomplished while preparing lunch with the help
of my favorite infrastructure, namely electricity, was of a transcript
of a speech given by one Christopher J. Waller, a freshly-minted
governor of the United States’ 51st and most powerful state, the
Federal Reserve.

The subject of this speech? CBDCs—which aren’t, unfortunately, some
new form of cannabinoid that you might’ve missed, but instead the
acronym for Central Bank Digital Currencies—the newest danger cresting
the public horizon.

Now, before we go any further, let me say that it’s been difficult for
me to decide what exactly this speech is—whether it’s a minority
report or just an attempt to pander to his hosts, the American
Enterprise Institute.

But given that Waller, an economist and a last-minute Trump appointee
to the Fed, will serve his term until January 2030, we lunchtime
readers might discern an effort to influence future policy, and
specifically to influence the Fed’s much-heralded and
still-forthcoming “discussion paper”—a group-authored text—on the
topic of the costs and benefits of creating a CBDC.

That is, on the costs and benefits of creating an American CBDC,
because China has already announced one, as have about a dozen other
countries including most recently Nigeria, which in early October will
roll out the eNaira.

By this point, a reader who isn’t yet a subscriber to this particular
Substack might be asking themselves, what the hell is a Central Bank
Digital Currency?

Reader, I will tell you.

Rather, I will tell you what a CBDC is NOT—it is NOT, as Wikipedia
might tell you, a digital dollar. After all, most dollars are already
digital, existing not as something folded in your wallet, but as an
entry in a bank’s database, faithfully requested and rendered beneath
the glass of your phone.
In every example, money cannot exist outside the knowledge of the Central Bank

Neither is a Central Bank Digital Currency a State-level embrace of
cryptocurrency—at least not of cryptocurrency as pretty much everyone
in the world who uses it currently understands it.

Instead, a CBDC is something closer to being a perversion of
cryptocurrency, or at least of the founding principles and protocols
of cryptocurrency—a cryptofascist currency, an evil twin entered into
the ledgers on Opposite Day, expressly designed to deny its users the
basic ownership of their money and to install the State at the
mediating center of every transaction.

2.

For thousands of years priors to the advent of CBDCs, money—the
conceptual unit of account that we represent with the generally
physical, tangible objects we call currency—has been chiefly embodied
in the form of coins struck from precious metals. The adjective
“precious”—referring to the fundamental limit on availability
established by what a massive pain in the ass it was to find and dig
up the intrinsically scarce commodity out of the ground—was important,
because, well, everyone cheats: the buyer in the marketplace shaves
down his metal coin and saves up the scraps, the seller in the
marketplace weighs the metal coin on dishonest scales, and the minter
of the coin, who is usually the regent, or the State, dilutes the
preciosity of the coin’s metal with lesser materials, to say nothing
of other methods.
Behold the glory of thelaw

The history of banking is in many ways the history of this dilution—as
governments soon discovered that through mere legislation they could
declare that everyone within their borders had to accept that this
year’s coins were equal to last year’s coins, even if the new coins
had less silver and more lead. In many countries, the penalties for
casting doubt on this system, even for pointing out the adulteration,
was asset-seizure at best, and at worst: hanging, beheading,
death-by-fire.

In Imperial Rome, this currency-degradation, which today might be
described as a “financial innovation,” would go on to finance
previously-unaffordable policies and forever wars, leading eventually
to the Crisis of the Third Century and Diocletian’s Edict on Maximum
Prices, which outlived the collapse of the Roman economy and the
empire itself in an appropriately memorable way:

Tired of carrying around weighty bags of dinar and denarii,
post-third-century merchants, particularly post-third-century
traveling merchants, created more symbolic forms of currency, and so
created commercial banking—the populist version of royal
treasuries—whose most important early instruments were institutional
promissory notes, which didn’t have their own intrinsic value but were
backed by a commodity: They were pieces of parchment and paper that
represented the right to be exchanged for some amount of a
more-or-less intrinsically valuable coinage.

The regimes that emerged from the fires of Rome extended this concept
to establish their own convertible currencies, and little tiny shreds
of rag circulated within the economy alongside their
identical-in-symbolic-value, but distinct-in-intrinsic-value, coin
equivalents. Beginning with an increase in printing paper notes,
continuing with the cancellation of the right to exchange them for
coinage, and culminating in the zinc-and-copper debasement of the
coinage itself, city-states and later enterprising nation-states
finally achieved what our old friend Waller and his cronies at the Fed
would generously describe as “sovereign currency:” a handsome napkin.
Sovereign currency, as known to history

Once currency is understood in this way, it’s a short hop from napkin
to network. The principle is the same: the new digital token
circulates alongside the increasingly-absent old physical token. At
first.

Just as America’s old paper Silver Certificate could once be exchanged
for a shiny, one-ounce Silver Dollar, the balance of digital dollars
displayed on your phone banking app can today still be redeemed at a
commercial bank for one printed green napkin, so long as that bank
remains solvent or retains its depository insurance.

Should that promise-of-redemption seem a cold comfort, you’d do well
to remember that the napkin in your wallet is still better than what
you traded it for: a mere claim on a napkin for your wallet. Also,
once that napkin is securely stowed away in your purse—or murse—the
bank no longer gets to decide, or even know, how and where you use it.
Also, the napkin will still work when the power-grid fails.

The perfect companion for any reader’s lunch.

3.

Advocates of CBDCs contend that these strictly-centralized currencies
are the realization of a bold new standard—not a Gold Standard, or a
Silver Standard, or even a Blockchain Standard, but something like a
Spreadsheet Standard, where every central-bank-issued-dollar is held
by a central-bank-managed account, recorded in a vast ledger-of-State
that can be continuously scrutizined and eternally revised.

CBDC proponents claim that this will make everyday transactions both
safer (by removing counterparty risk), and easier to tax (by rendering
it well nigh impossible to hide money from the government).

CBDC opponents, however, cite that very same purported “safety” and
“ease” to argue that an e-dollar, say, is merely an extension to, or
financial manifestation of, the ever-encroaching surveillance state.
To these critics, the method by which this proposal eradicates
bankruptcy fallout and tax dodgers draws a bright red line under its
deadly flaw: these only come at the cost of placing the State, newly
privy to the use and custodianship of every dollar, at the center of
monetary interaction. Look at China, the napkin-clingers cry, where
the new ban on Bitcoin, along with the release of the digital-yuan, is
clearly intended to increase the ability of the State to
“intermediate”—to impose itself in the middle of—every last
transaction.

“Intermediation,” and its opposite “disintermediation,” constitute the
heart of the matter, and it’s notable how reliant Waller’s speech is
on these terms, whose origins can be found not in capitalist policy
but, ironically, in Marxist critique. What they mean is: who or what
stands between your money and your intentions for it.

What some economists have lately taken to calling, with a suspiciously
pejorative emphasis, “decentralized cryptocurrencies”—meaning Bitcoin,
Ethereum, and others—are regarded by both central and commercial banks
as dangerous disintermediators; precisely because they’ve been
designed to ensure equal protection for all users, with no special
privileges extended to the State.

This “crypto”—whose very technology was primarily created in order to
correct the centralization that now threatens it—was, generally is,
and should be constitutionally unconcerned with who possesses it and
uses it for what. To traditional banks, however, not to mention to
states with sovereign currencies, this is unacceptable: These upstart
crypto-competitors represent an epochal disruption, promising the
possibility of storing and moving verifiable value independent of
State approval, and so placing their users beyond the reach of Rome.
Opposition to such free trade is all-too-often concealed beneath a
veneer of paternalistic concern, with the State claiming that in the
absence of its own loving intermediation, the market will inevitably
devolve into unlawful gambling dens and fleshpots rife with tax fraud,
drug deals, and gun-running.

It’s difficult to countenance this claim, however, when according to
none other than the Office of Terrorist Financing and Financial Crimes
at the US Department of the Treasury, “Although virtual currencies are
used for illicit transactions, the volume is small compared to the
volume of illicit activity through traditional financial services.”

Traditional financial services, of course, being the very face and
definition of “intermediation”—services that seek to extract for
themselves a piece of our every exchange.

4.

Which brings us back to Waller—who might be called an
anti-disintermediator, a defender of the commercial banking system and
its services that store and invest (and often lose) the money that the
American central banking system, the Fed, decides to print (often in
the middle of the night).
You’d be surprised how many opinion-writers are willing to publicly
pretend they can’t tell the difference between an accounting trick and
money-printing.

And yet I admit that I still find his remarks compelling—chiefly
because I reject his rationale, but concur with his conclusions.

It’s Waller’s opinion, as well as my own, that the United States does
not need to develop its own CBDC. Yet while Waller believes that the
US doesn’t need a CBDC because of its already robust commercial
banking sector, I believe that the US doesn’t need a CBDC despite the
banks, whose activities are, to my mind, almost all better and more
equitably accomplished these days by the robust, diverse, and
sustainable ecosystem of non-State cryptocurrencies (translation:
regular crypto).

I risk few readers by asserting that the commercial banking sector is
not, as Waller avers, the solution, but is in fact the problem—a
parasitic and utterly inefficient industry that has preyed upon its
customers with an impunity backstopped by regular bail-outs from the
Fed, thanks to the dubious fiction that it is “too big too fail.”

But even as the banking-industrial complex has become larger, its
utility has withered—especially in comparison to crypto. Commercial
banking once uniquely secured otherwise risky transactions, ensuring
escrow and reversibility. Similarly, credit and investment were
unavailable, and perhaps even unimaginable, without it. Today you can
enjoy any of these in three clicks.

Still, banks have an older role. Since the inception of commercial
banking, or at least since its capitalization by central banking, the
industry’s most important function has been the moving of money,
fulfilling the promise of those promissory notes of old by allowing
their redemption in different cities, or in different countries, and
by allowing bearers and redeemers of those notes to make payments on
their and others’ behalf across similar distances.

For most of history, moving money in such a manner required the
storing of it, and in great quantities—necessitating the palpable
security of vaults and guards. But as intrinsically valuable money
gave way to our little napkins, and napkins give way to their
intangible digital equivalents, that has changed.

Today, however, there isn’t much in the vaults. If you walk into a
bank, even without a mask over your face, and attempt a sizable
withdrawal, you’re almost always going to be told to come back next
Wednesday, as the physical currency you’re requesting has to be
ordered from the rare branch or reserve that actually has it.
Meanwhile, the guard, no less mythologized in the mind than the
granite and marble he paces, is just an old man with tired feet, paid
too little to use the gun that he carries.

These are what commercial banks have been reduced to: “intermediating”
money-ordering-services that profit off penalties and fees—protected
by your grandfather.

In sum, in an increasingly digital society, there is almost nothing a
bank can do to provide access to and protect your assets that an
algorithm can’t replicate and improve upon.

On the other hand, when Christmas comes around, cryptocurrencies don’t
give out those little tiny desk calendars.

But let’s return to close with that bank security guard, who after
helping to close up the bank for the day probably goes off to work a
second job, to make ends meet—at a gas station, say.

Will a CBDC be helpful to him? Will an e-dollar improve his life, more
than a cash dollar would, or a dollar-equivalent in Bitcoin, or in
some stablecoin, or even in an FDIC-insured stablecoin?

Let’s say that his doctor has told him that the sedentary or
just-standing-around nature of his work at the bank has impacted his
health, and contributed to dangerous weight gain. Our guard must cut
down on sugar, and his private insurance company—which he’s been
publicly mandated to deal with—now starts tracking his pre-diabetic
condition and passes data on that condition on to the systems that
control his CBDC wallet, so that the next time he goes to the deli and
tries to buy some candy, he’s rejected—he can’t—his wallet just
refuses to pay, even if it was his intention to buy that candy for his
granddaughter.

Or, let’s say that one of his e-dollars, which he received as a tip at
his gas station job, happens to be later registered by a central
authority as having been used, by its previous possessor, to execute a
suspicious transaction, whether it was a drug deal or a donation to a
totally innocent and in fact totally life-affirming charity operating
in a foreign country deemed hostile to US foreign policy, and so it
becomes frozen and even has to be “civilly” forfeited. How will our
beleagured guard get it back? Will he ever be able to prove that said
e-dollar is legitimately his and retake possession of it, and how much
would that proof ultimately cost him?

Our guard earns his living with his labor—he earns it with his body,
and yet by the time that body inevitably breaks down, will he have
amassed enough of a grubstake to comfortably retire? And if not, can
he ever hope to rely on the State’s benevolent, or even adequate,
provision—for his welfare, his care, his healing?

This is the question that I’d like Waller, that I’d like all of the
Fed, and the Treasury, and the rest of the US government, to answer:

Of all the things that might be centralized and nationalized in this
poor man’s life, should it really be his money?

Leave a comment

113 Comments
	
John B Turner
Oct 9, 2021Liked by Edward Snowden

Thank you Ed. Your article starts off slow, speeds up, is informative,
and full of delightful humour - so I'm now a paying subscriber as well
as admirer and supporter of your Hong Kong guardians getting to
Canada. Best wishes forever to you and yours.
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2 replies by Edward Snowden and others
	
Stephen2021
Oct 9, 2021Liked by Edward Snowden

Ed, you keep killing it with great articles! Keep them coming!!
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