Important note: central bank digital currencies are not crypto currrencies. They are not block chains. They are not decentralized. They are not permissionless. I cannot find a record of any CBDC which clearly states that it want's to use any of these technologies. I'd be interested to be proven wrong.
Central bank digital currencies are essentially a new hybrid monetary/fiscal policy tool. Historically the Federal reserve and many other central banks function by buying and selling the debt of their sovereignty to influence interest rates. They pay for these securities by essentially creating money that didn't exist before and trading it to an institution for their debt security. For a long time this money has just been digital, when the Fed creates money to buy a bond from JP Morgan, all they do is to update a line in a database. So they already have a digital currency, but only for dealing with large institutions.
The idea of these new CBDCs is to setup a similar system but where the digital currency could be distributed to individual citizens. This would give the Fed a more powerful tool than it has ever had before because giving money directly to people is almost guaranteed to create real economic activity unlike adding to bank reserves(which is why we haven't seen meaningful inflation after 11 years of the Fed spamming reserve creation).
Some of this is lightly speculative but a detailed scheme which is almost exactly this was already proposed in a bill to congress, The Banking For All Act: https://www.congress.gov/bill/116th-congress/senate-bill/357...
I don't think it is hyperbolic to say that CBDCs are the "how" part of MMT. They take most of the logistical difficulties out of direct to citizen cash transfers and this is their primary goal.
If you really just want everyone to have access to banking, create post banking. [1] Then, if you really just want everyone to get monthly checks from the government, deposit them electronically. Thatâs all you need to do. This already works in many countries. It can even work in the US with a bit of spit and polish (we used to have a post banking service and itâs been proposed to be reinstated).
As a german I don't see it. We had the "Postbarscheck", which is now gone. Since maybe about 20 years? That is not the direction they/them/the Reptiloids want to march the human cattle in. There need to be more efficient 'dig it all' threadmills. Anyways. Don't care. Am banked. Multiple times. Even have Alipay, Yay!
This makes no sense. Are you saying that digital currency is a fancy term for a direct deposit? We've had direct deposits for a very long time. My tax refund comes as a direct deposit. The government seems to be able to directly give me money digitially just fine.
> Are you saying that digital currency is a fancy term for a direct deposit?
Basically yes, but specifically only for the case of a direct deposit between the Federal reserve and an individual. That doesn't currently exist.
But that's also basically my point. CBDCs are nothing new from an operational or technological perspective which I think is something many people are getting confused about. They are a new thing in terms of policy capabilities for central banks. They are not a new thing in any other way. All the technology already exists.
Fair enough. I guess it feels almost unbelievable that all this fuss is over something so mundane.
I guess i dont really understand why though. It sounds like the central bank is thinking about becoming, well, a normal bank. We already have normal banks. Governments can already transfer cash to accounts in normal banks. Governments can already sell bonds to people who want some sort of very stable investment backed by the state. What's the point of becoming a consumer bank? Why are they bothering? How do they benefit? Is there anything to this other than the desire to jump aboard the anything-that-sounds-remotely-like-bitcoin-even-if-unrelated hype train.
You can have deposit in a bank, and that bank has deposit in the central bank. That's the current situation. With CBDC, you can have deposit in the central bank. This is an important difference.
Important to whom? As a private citizen, why would i want this? As a central bank, why would i want this? Which parties benefit from such an arrangement, which to me seems only superficially different from the staus quo? How and why do they benefit?
You know what's new that hasn't been done before? Your government giving money to me (not a citizen) in an effort to popularize your currency.
If President Xi wants to gift me some digital Yuan to spend how I wish (so the Yuan becomes more accepted outside China).. I say hell, why not?
> Important note: central bank digital currencies are not crypto currrencies. They are not block chains. They are not decentralized. They are not permissionless. I cannot find a record of any CBDC which clearly states that it want's to use any of these technologies. I'd be interested to be proven wrong.
Indeed, by default almost majority of CBDCs are permissioned chains since CB is the only authority to create money and destroy, aka mint.
Technology-wise though youâd be surprised. Most of the solutions out there are actually DLT based, almost all blockchain based. There are modern aspects that work differently than other cryptos (well, borrowed), e.g. there are permissioned blockchain solutions that allow âchannelsâ to be private. This allows a bank to still be on a ledger while txns are hidden from other banks. They are also decentralized because Central banks are not high tech companies, but they have trusted middle layer still to be fast and cheap at some other disadvantages for citizen, e.g. control.
Central bank digital currencies can be blockchain based, they can be decentralised etc. In fact, he central banks that I have spoken to would rather have a decentralised currency, because it would mean less work for them.
The motivation of a central bank is easy; make sure the currency is liquid, make sure they can use the currency to affect inflation and so forth. Whatever setup gives them the best ability to meet those kinds of goals will be what decided what they go for.
They motivation and goals are quiet unique in that sense, it is totally different from the commercial banks or the private sector. Therefore I do believe we will see proper blockchain, decentralised, systems in the future.
I could see CBDCs using blockchain solely because someone utterly non-technical, at some higher level in the bureaucracy, insisted that they make a blockchain-based cryptocurrency âso as to not get left behindâ or âbecause we need to compete with Bitcoinâ.
Clearly neither of those two rationales make any sense whatsoever - and they might even seem like a downright ridiculous suggestion to some readers of this response. If thatâs you, then welcome to wild and whacky world of public spending.
Thatâs not me. I but can see how a DLT could work very well as means of a currency.
We could have the commercial banks, and others if necessary, run nodes. They could verify payments on âaccountsâ, or addresses, (if we want to keep the old meaning of bank account, thatâs fine, then we could instead call these addresses) which are held by the commercial banks. These addresses could be non-anonymous such that requirement for know-your-customer still reside with the commercial banks (the central banks really donât want to have to get anyway near KYC requirements). Each such âaccountâ/address could be linked to addresses of currency at the CB, which at that point was anonymous.
The CB could then have full control of the issuance of currency, control interest directly on the currency itself, everything being anonymous to the CB.
A private blockchain is just a blockchain where miners have to be authorized by a central authority i.e. the central bank.
Since each miner is linked to a publicly known institution, attacks on the blockchain could be punished with jail time and revocation of the authorization.
Proof of work is just a very advanced anti spam protection system. In decentralized systems people can create as many accounts as they want. You need to make sure that they can't.
I'm just saying this is how it could work. It's not obvious whether its a good or bad idea.
The central bank is CENTRAL. They want to CENTRALLY coordinate monetary activity. They are never going to sign up to decentralize their one policy tool.
I don't disagree that it is technically feasible to implement these on a block chain, and I think it is possible that there may be some effort to tokenize a currency to track it on a block chain in a secondary way, but that is very different from the block chain being the irrefutable source of truth for ownership of the currency for a sovereign. That will never happen.
I do not agree. And I think the fact that almost every central bank around is showing interest in the idea, and some perusing it more than others, could be seen as arguments against your position.
I think itâs very simple. The central banks are given an assignment and a goal by the government, in many ways it has become harder for them to do that; making sure the currency is liquid and people have means of payment, for example in situations of crisis, is much harder today when people are paying less in hard cash monies, and most stuff is electronic or how affecting inflation by means of repo-rates have become much slower and much harder. They need to do something. Having it as a DLT might give them more control, not less, since they could for example add interest rates directly on the currency to affect inflation, rather than having to take the route via the commercial banks.
I am not an expert, but I have though quiet a bit about it, and I have a bit of experience with a couple of European central banks. I really do think that we will see this, at least in some placss, itâs just a matter of time.
Here's what I'm most interested in here: right now, if I'm using an alternative mobile OS (besides iOS or Android), it's basically impossible for me to implement digital payments through existing payment networks. On the other hand, because cryptocurrencies are FOSS and very well-standardized, it's very possible to implement a cryptocurrency wallet.
If central-bank digital currencies are closer to cryptocurrencies in this regard, and the protocol is standardized enough that mobile Linux OSes can have wallets... that'll be very much appreciated. I'd love to have mobile payments but not depend on Apple or Google.
Iâd wager that only very progressive and liberal countries would have this degree of openness. Think Switzerland and Holland. Most countries will distribute their own apps (which may also spy on you) and/or use preferred technology partners.
Switzerland isn't considered progressive in any way, in fact it's a very conservative country compared to its neighbors (source: I'm from there).
Progressive used to mean you were concerned with the freedom and liberty of individuals and with transparency in government. That seems closest to "Libertarian" in American terms, and Switzerland, as a neutral country along with other European style politics, seems to fit that bill
Point of order: the name of the country is The Netherlands, not Holland.
Another point of order: Switzerland might be financially liberally oriented but the political landscape is largely conservative and right leaning.
What does financially liberal even mean here? When it comes to CBDCs and currency policy I don't even think I have gotten a strong sense of how the different camps split on this issue.
If the problem is "I have a bank account, now I want to receive payments automatically without depending on anything else", you are looking for a money transfer protocol. The Brazilian Pix is quite interesting, as an open protocol, but I don't known of any read made FOSS client for it yet.
There are other nationwide protocols around, some open, but most closed, some closed with publicly accessible middleman. Now we are mostly missing some protocol for international settlement between those.
Honestly, I don't get the point of state sponsored e-money. They looks like me-too projects by people that don't understand what they are doing.
There are a lot of cost savings to be made in a move to a national digital currency. Just settlement alone could be made way cheaper. Swift could be cut out as the middleman. It would be a good cost saving innovation.
Yes, I saw the other threads about international settlements. The discussion here on HN is very illuminating.
This is actually one of the main USPs to have payment at public layer. Even USA is pushing for an open API and SDKs, one day maybe an open source protocol.
Can't you just use the many existing web payment frameworks? Do you have some more specific requirement?
I should clarify: I mean physical payments with a merchant in person here. If I want to use a digital wallet at an in-person merchant, my only options are to use products by Apple or Google (or possibly both Samsung and Google). If I'm working on software for a non-Android or iOS phone? It's just not an option, not without (what I can only assume are) hugely expensive business deals with banks and card issuers.
A digital currency issued by a central bank, if sufficiently standardized, could lower the barrier to entry here such that it's feasible for developers who don't make billions of dollars in revenue to participate.
(Now, I also think the way credit card payments work right now in general is silly and unsafe, but that's only tangentially related here. Still, I think a digital currency could probably do it better. :)
Digital currencies allow for full tracking of every transactions and are a privacy nightmare.
They allow applying negative interest rate on everybody and they would facilitate neverending hyperinflation (no need to print new bills at great expense).
Hence they can't coexist with cash so say goodbye to cash.
I don't like where we're going.
To the uninitiated some of what you say may sound like conspiracy thinking. But itâs really not. People in ECB have been talking along these lines for over a year. Here is the latest example. [1] The more you follow it the more it really seems like if the people in the ECB had their way theyâd force everyone to live paycheck to paycheck and never save. Theyâve been running negative interest rates and they donât work (because they simply, empirically donât). They wonât accept the empirical evidence and go back to the drawing board. Instead the problem in their minds is always theyâve never gone far enough! They want to keep doubling down and try to gain more and more centralized control of peopleâs money.
[1] https://www.bloomberg.com/news/articles/2021-02-10/ecb-s-pan...
Negative rates are only popular because the technocrats can't get expansionary fiscal policy to happen. Because Eurozone governments are boxed in with debt rules.
The only way out of this to getting money circulating in the real economy is to go after the giant concentrations of wealth that are distorting the situation so badly.
Yeah, the central bank only has a hammer (interest rates) but its supposed to do jobs that require screwdrivers. That's why it gets dumber and dumber. At some point you apply so much force on your hammer that it can drive screws. That's the idea behind negative interest rates.
Privacy is ranked the second after security in a recent survey from ECB, so it is a known demand and design criteria for both sides.
CBDC will co-exist with cash for years to come. Fully monitored CBDC will be at a high disadvantage by citizens specially in modern world, while fully private one would not be allowed by CBs due to need for transparency.
Here also comes the product builders. We could design a CBDC that is fully transparent, which is the easiest to build, these days mostly DLT based. The challenge is how to enable some TXNs to be private by design and not only policies.
A major country is taking the extreme case of full transparency, while ECB and others like Canada are strongly focusing on privacy as a feature.
"privacy" as defined by the grocery store down the street can't see your history of purchases or privacy as in the government doesn't have every detail of every sexual fetish you've ever paid for? The FBI has been stockpiling that for decades.
Those are very different things, and from Europe's approach to the GDPR, I think it is the first.
Rather privacy as there can't be a direct connection between you and each one of your transactions, nor can the ECB refuse and cancel transaction of yours or completely exclude you from the system altogether.
The former is almost a given that it will in fact be possible. The latter was raised as an added benefit of the system either by BIS's Carstens or IMF's Georgieva -- can't recall with certainty currently. Both are promoted as weapons against black markets, corruption, and terrorism.
Yet those who are willing to give up liberty for safety, and all that.
Great point.
The control of privacy should be in the protocol and not in the hands of the authorities, if there is going to be a trust built around it. Otherwise, we have what is there today, without the anonymous cash element.
There are different designs today to address this concern, see e.g. the one from Bank of Canada, as one of the frontiers of privacy for citizen: https://www.bankofcanada.ca/2020/06/staff-analytical-note-20...
Applying negative interest rates can be a good thing depending on what policy the central bank pursues, and they don't add to any risk of hyperinflation, because central banks if anything pursue price stability or targeted inflation as one of their policy goals. (and have been very good at it in fact, and digital cash changes no incentives here).
I personally have absolutely no problem with them and I'd be very glad if I could settle every transaction with a digital Euro. I don't particularly enjoy the middlemen in the form of countless payment processors who all take cuts out of transactions, and I don't really see what privacy or tracking burden applies that existing firms don't already engage in.
To me the payment infrastructure consisting of countless of private firms seems more like a relic of the past. Free, instant financial services to me are ideally a public utility in the same way the water or transport infrastructure is.
> I'd be very glad if I could settle every transaction with a digital Euro. I don't particularly enjoy the middlemen in the form of countless payment processors who all take cuts out of transactions
Are we sure those digital currencies would be handled directly and fully by the central bank at no (direct) fee per transaction? Who's to say that the way things currently work won't stay exactly the same, except for your Visa card being denominated in dEuros instead of Euros?
I may be a pessimist, but the way I see it, the current end-user facing financial system (retail banks and payment processors) are much too big and much too greedy to stand idly by while the central bank takes their pie away.
Just because the central banks issue the money, it doesn't necessarily mean that they also have to handle the transactions.
The current state of merchant banks and payment providers can very well continue, without CBs having to assume new responsibilities.
After all, the trend is towards more privatisation, not less.
I share your pessimism. I'd say the central bank is the oven wherein the commercial banks bake their pies.
> I don't like where we're going.
Me neither, not at all.
The idea of a digital Euro is already worked on:
https://www.ecb.europa.eu/euro/html/digitaleuro.en.html
Obviously, it's an "inclusive" system, a term that evokes in me strong feelings of mistrust, as it has no provisions of alternatives like not moving to a digital currency. "Inclusive" by mandate and without consent, or the possibility to opt out. (Somewhat reminds me the Onion's Google privacy village.)
Let's crack open the windows, so we can throw privacy and liberty right out.
The mandate is not discsussed yet but could come. CBs are running many pilots since they donât know also whether CBDC would work for their incentive, since it has to be accepted by citizens and not create a shock to economy.
side note, âinclusiveâ here refers to unbanked population. Today they can use cash, but many people specially in poor countries have no access to banking. A no-smartphone no-bank-needed digital cash could enable big part of countries to be included in financial system (some up to 40% of population)
The transition can be done quickly enough, though probably not overnight in Europe (like with India's overnight demonetisation of the 500 and 1,000 Rupee notes).
In the current climate, where we're all ever so slightly microbiophobic, it'll even be easier to push through as a good thing, handwaving any concerns with respect to privacy and centralised control as conspiratorial.
Indeed I am aware of the intended meaning of "inclusive" in their texts, I just played around with expanding it a bit.
Right on point distinction. There are various models:
- almost all CBDC designs are transparent (monitored and stored), since they sit on the ledger and has to be auditable by a third party. So, the only way to allow privacy is to give some âvouchersâ that those transactions are either not stored or stored with a different key. ECB has proposed one such designs, e.g. 300 euro vouchers a day.
- there are other models that do not use DLTs so they can provide means not to store specific txns, hence private.
If stored, it can be audited.
IMF video clip with BIS director on CBDCs (at 24:00), https://meetings.imf.org/en/2020/Annual/Schedule/2020/10/19/...
> With cash, we don't know who is using the 100 dollar bill today ... a key difference with CBDC is that the central bank will have absolute control on the rules and regulations that determine the expression of that central bank liability .. also we will have the technology to enforce that ... if an advanced economy issues a CBDC, and someone in a 3rd country wants to use it, it will require the consent of the central bank of the residence of that person, therefore the degree of control will be far bigger.
Thank you for the link!
Indeed it was Carstens and not Georgieva (as I wasn't clear in my other comment).
One benefit I didn't see mentioned was that central banks, being an arm of the government, presumably won't cut off payment processing for completely-legal-but-socially-unacceptable sites like private payment services do. I know this happens to porn artists/websites all the time, and recently it's been happening to political extremist sites like Parler etc. too.
A lot of that was due to government "suggestion": https://en.wikipedia.org/wiki/Operation_Choke_Point
That's interesting. As I commented elsewhere on the thread, I'm not sure why people think that with a central bank digital currency the retail banking and payment processor sectors would be shut down, or at the least that it would be possible to easily circumvent them.
I think they will continue the way they do today, but instead of trading in "paper" tokens they will trade in digital ones. Which, what with the fractional reserve and all, shouldn't be all that different. So they could continue with their current kind of policies, like "we won't do business with people / companies we consider undesirable".
a concern I've heard of CBDCs and cashless systems in general is that governments will be able to do exactly that, and there wouldn't be a recourse to someone pushed out of the system.
More realistically they could have your purchases and income streams feed into a social credit system or actuarial models.
I would expect the use of the system for policy enforcement to be much more intrusive.
In the end it's just another censorship mechanism, and the only question will be how to extend its use. Once the system is in place, it becomes a neverending temptation.
i can't read the entire article, but i can read the comments. it doesn't look like anyone is talking about the real reason for CBDCs. which is to create more liquidity. in other words, to get money out of escrow while international cross border payments are settled.
when a large transaction [billions] is made between two countries, there must be that much of each currency in either institutions account. it is there for days or weeks at a time. so that money isn't being put to work, it's just sitting there. a CBDC would settle these transactions within seconds. this is why something like xrp is interesting to many people.
specifically, CBDCs are interesting where the IMF is involved. they issue to countries something called special drawing rights, SDRs. these are a basket of currencies used to 'balance' the international monetary system between the developed world and the developing world. [the world bank is where the g7-20 do their banking]. a 'one world currency' might look something like a CBDC SDR. since currency transactions can be immediately settled anywhere in the world, a [diversified package of] SDR would essentially serve as a 'world dollar'.
as an aside, the economic reset being promoted, coincidentally by the world economic forum, i think, is an attempt at a peaceful transition away from the US dollar as the worlds reserve currency. and while it might be china's Yuan or reminbi that replaces it, i think it might be something more like an SDR. or, in other words, a basket of currencies lumped into one digital currency; a one world digital currency.
I think the notion that BTC or Ethereum are actually decentralized digital currencies is the biggest farce of the last 5 years. A small concentration of miners (mostly based in china) control the vast majority transactions and will continue to so based on the increased difficulity that only large economies of scale will profit from. Middlemen(brokers and exchanges) charge fees just like banks do to transact and store. The transaction fees on the chains are equivalent to that of just sending a bank wire, and your wallet is no more secure than a bank account (can still be hacked) and not FDIC insured. Where is the benefit now?
Concentration seems to be unavoidable. A direct consequence of the power law respectively Matthew principle. I haven't researched the alternative PoS (prof of stake) concept too deeply, but I'd wager it'll end the same way.
This isn't a technological problem, but a fundamental principle of our reality. Still, the ability to fork and just restart the chain from a previous point, with new miners, gives the collective some choice on a fundamental level, should the concentration ever become a problem.
The concentration, though undesired, is accidental and not coordinated. That's the difference.
Hfsp
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