Let’s chat about this cash and digital money stuff in simpler terms, like we’re talking to a friend over coffee.
In the world, there’s this thing called cash. It’s the real deal when it comes to money – you can touch it, feel it, and use it for transactions. It’s the gold standard of money.
But here’s the twist. Your bank account balance isn’t exactly cash. It’s like a promise of cash. Your bank has a bit of real cash in their vault or stashed away in their special accounts. They can give you that cash if you ask for it, but they don’t have enough cash for everyone if we all want it at once.
Now, there’s another pile of cash hidden outside the banks. It’s the money in your wallet, piggy bank, or secret hiding spot. When you combine the cash in the banks with this hidden stash, it’s called the “monetary base.” But that’s not the same as all the money in our economy.
Most of the money floating around isn’t cash at all. It’s a digital promise made by the banks when they lend money. Type some numbers into your account, and voila, you’ve got money! But this isn’t the same as real cash. Banks can make this digital money out of thin air, as much as they’re allowed by the reserve banking system’s policy of the day, which is a lackey to the government.
No magic tricks here, just banking.
Here’s a shocker: As of July 2023, the real cash in the United States was around $5.5 trillion, but this digital money (called M3) was a whopping $20.9 trillion! If everyone suddenly wanted cash, the banks couldn’t hand it all out. So, there’s a real chance your bank could go belly up, like it did for thousands during the Great Depression.
But having such an asymmetry is not only precarious considering the potentiality of a bank run – going more and more digital has a lot of drawbacks.
Cash is like your superhero sidekick, always ready in your pocket. It’s anonymous and keeps you safe if things go haywire. But if cash disappears, it’s easy for banks to freeze or close your account.
Sounds like a conspiracy? Well, in the Western World we’ve already seen this very thing happen many times – Canada freezing trucker accounts during the COVID protests, British politician Nigel Farage left hanging high and dry, just to name two recent prominent media examples. Every big bad thing starts as a small bad thing that everybody plays down and ridicules.
And this is the Western World – the number of such infringements in countries such as China, which social credit system appears to be many 21st-century politician’s role model of late, will be in the millions.
But having to use banks for such endeavors is old news. Gather ’round and let’s talk about the idea of the Central Bank Digital Currency, or CBDC for short. I’m not one to bash innovation or technological progress, quite the contrary. But I do have some concerns I want to share. Think of this as a friendly warning, much like you’d give your friend before they step into a quicksand-ridden swamp.
What’s a CBDC? Picture it as a shiny new sports car, that can be deactivated by the manufacturer “for reasons of safety”. It’s alluring, high-tech, and seems like the future.
The promise of CBDCs is tempting: faster transactions, easy digital payments, and the potential to revolutionize the way we handle money. But here’s the catch: with greater power comes greater responsibility, and greater potential for abuse.
Let’s dive into the first concern, privacy. A CBDC is like a transparent piggy bank. Every transaction & every purchase you make with it can be seen. It’s like if you walked into a glass-walled bank vault and started counting your cash for everyone to see. That might be fine for some, stating the old “I have nothing to hide”. But that’s not what privacy is about – it’s about the protection of a fundamental right.
What about those moments when you want a bit of privacy? Just like you might close the blinds in your home, sometimes you need to shield your financial affairs from prying eyes. Isn’t the freedom to make financial choices an essential part of our lives? Europe’s Cristine Lagarde has already stated in no unclear terms that the consumer is not the primary beneficiary of CBDCs.
A CBDC hands the government an all-access pass to your financial world. It’s as if they’re given the keys to your house, your car, and your safe. They can lock the doors, turn off the ignition, and seal your vault without your say in the matter. It’s a bit like living in a world where your landlord can enter your home uninvited, and whenever they please shut off your water heater, ask you why you aren’t airing the bathroom, repaint the kitchen pink, set up lavender air fresheners in your bedroom, or stare at you while you sleep – all perfectly legal, and a fairly unsettling thought.
Sounds like a conspiracy? The digital Yuan is already trialing in China and is planned to be rolled out nationwide soon. It is programmable money by design – the government has the power to designate what money will be spent on (for example to support economic recovery of a desired sector), or how much time citizens have to spend it. An Orwellian scenario. Not that China ever was a free market, but does that mean we have to emulate it?
As well, consider the potential for negative interest rates. CBDCs may take a chunk out of your wallet without your consent. It’s like going to a restaurant, enjoying your meal, and then the waiter tells you, “Oh, by the way, the food cost you more than the bill – we’ve already taken that extra amount from your wallet” This isn’t your traditional idea of interest; it’s more like a financial tapeworm, slowly consuming your money.
Of course, “printing money” straight into your wallet during recessions, causing money velocity to spike and inflation to grow would be another problem. Sounds too far-fetched? Probably not, given the last 3 years.
Since we’re talking about spending, let’s talk about programmable money. CBDCs can have built-in restrictions. It’s as if every coin you have has a list of places it can’t go and things it can’t buy. It’s like trying to go shopping with a voucher that says, “Valid for apples only,” when you really want some oranges and bananas. This kind of financial control isn’t the kind of liberty we should be embracing.
Of course, it wouldn’t be apples or bananas! Who do you think the government is, Big Brother?? …. BUT it might be solar panels and EV’s instead of gas heaters and combustion engine cars, or heavy levies on them, always in the name of the greater good.
CBDCs have their appeal, much like that flashy sports car. But, like any new toy, it’s crucial to understand the fine print and the potential consequences – what if the government can tell the manufacturer to switch off your car because it has too high a CO2 exhaust, you didn’t get you MOT … or you didn’t submit your tax return? A CBDC might sound like a leap into the future, but it also raises questions about your financial freedom, your privacy, and the balance of power between you and the government.
To be frank, one has to raise the question what they will add at all to our daily lives, apart from the potential for abuse and even more rambunctious monetary policy?
While they may seem new and exciting (especially to policy makers, consultants, and central bankers), CBDCs don’t introduce any groundbreaking consumer benefits. Most of the advantages they offer already exist in the form of digital payment methods such as debit cards, payment apps, and prepaid cards. In essence, CBDCs are like trying to reinvent the wheel in a world where people are already comfortably driving – and most citizens they’re pushed on are not happy.
One has to wonder why the push for them is so hard by legislators all around the world…
We should embrace progress and innovation, but not at the cost of our fundamental rights and freedoms. So, as you hear the siren call of the CBDC, remember that it’s not all sunshine and rainbows. It’s a double-edged sword, and we must wield it wisely to avoid unintended consequences, opening Pandora’s box. It’s time to proceed with caution and ensure that we’re not sacrificing our financial freedom on the altar of convenience and modernity.
