5 ms·

> This gives the central banks three very dangerous capabilities. This can be said about any technological innovation since the cave age. It's evil because it

> This gives the central banks three very dangerous capabilities. This can be said about any technological innovation since the cave age. It's evil because it could be used for evil. I, for one, don't appreciate this kind of arguments. For me personally CBDC has two big advantages - reduced risk (central banks can't go bankrupt) - commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.

I_am_tiberius 6y ago
Of course one can see it as an advantage. But it's the opposite of freedom. I want to be free.
- turbinerneiter 6y ago
  How are you less free if the a central bank issues a digital currency? You can still bitcoin all you want.
  - I_am_tiberius 6y ago
    Of course I can use Bitcoin if it's still allowed. I was referring to CDBCs.
  - lifty 6y ago
    If Bitcoin becomes big enough I think central banks will make a major push to ban it because it would severely diminish their power. My concern is that in such a scenario our monetary freedoms would be severely curtailed, and we would slide further towards a centrally controlled economy.
BLKNSLVR 6y ago
So, the benefit is that it cuts out the untrustworthy commercial banks? That sounds like a failure of politics and regulation; something that technology is a good workaround for, but a poor solution.
- perfunctory 6y ago
  I am not against commercial banks per se. But me not having to rely on bank deposits for day-to-day payments (I presume we all agree that nobody wants to carry cash around) will force banks to do a better job at attracting my money. Maybe they will have to give me a better interest rate and give me some knobs I can tune to control how my money is invested. Technology can be a catalyst for increasing competition between banks. There might be another (regulatory) way to do it. Whichever gets us there faster.
tonfa 6y ago
> commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store. Central banks have been against direct accounts for retail for this reason, because they didn't want to be in the business of retail lending as well. What would be the alternative there? It seems unlikely that central banks would go into the business of vetting and giving out small business loans. Could a commercial bank function with only giving out loans and no deposit (I guess it would get loans directly from the central bank instead of balancing its balance sheet with deposits?)
- perfunctory 6y ago
  > Could a commercial bank function with only giving out loans and no deposit As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
  - tonfa 6y ago
    > As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent. Not sure it makes sense, can they really compete against a "narrow banking" style bank? Why wouldn't narrow bank compete a better UI/services (and not offer any loans)? https://www.econlib.org/why-does-the-fed-oppose-narrow-banking/ https://www.econlib.org/why-does-the-fed-oppose-narrow-banki... explores a bit that part and the arguments against it.
    - perfunctory 6y ago
      > Not sure it makes sense, can they really compete against a "narrow banking" style bank? Sure they can. They should be able to offer a better interest rate on their deposits. "... new customers is one way, if not the cheapest way, to secure those reserves. Indeed, the current targeted fed funds rate—the rate at which banks borrow from each other—is between 0.25% and 0.75%, well above the 0.01% to 0.02% interest rate the Bank of America pays on a standard checking deposit.5 6 The banks don’t need your money; it’s just cheaper for them to borrow from you than it is to borrow from other banks." [0] Why is that? why is it cheaper for banks to borrow from me than from other banks? I say it's due to the lack of competition. [0]https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b...
rojeee 6y ago
Not to be pedantic but central banks can and do become insolvent! E.g. developing nations with dollar denominated debts. Central bankers will tell you they can’t go bankrupt but of course they have to say this as the whole system is based upon confidence and trust. Indeed, there have been certain periods of time where privately issued money / bank deposits were “safer” than central bank or government issued currency. Also keep in mind that bank deposits are not a promise to pay base money as people mistakenly believe. It’s just that commercial banks are a market maker between their money and the government/base money and it just so happens that the exchange rate is 1:1 unless the solvency of the bank, central bank or government is brought into question. Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan, you swap your IOU (a debt from you to the bank - the bank’s asset) for the bank’s IOU (debt from the bank to you - bank’s liability). You do this because the bank IOU is readily accepted by everyone and yours isn’t. If you just have a deposit, you get it by swapping the IOU from another bank or an IOU from the government (notes and coins) for an IOU with the bank you hold a deposit with. Note that the deposit is not your money either.
- perfunctory 6y ago
  > Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan Sure. But you don't simply get a loan. A bank (account manager) will make a decision whether they want to give you a loan (with a certain interest) or not. And I don't have any influence on that "decision". This is what I mean when I say "commercial banks invest my money on my behalf without me having any control over the process".
  - rojeee 6y ago
    This is true! Sorry, I’m a bit of a nerd about this stuff. I was just making the point that, in accounting terms, the banks don’t invest money... they create and destroy it! Loan creation goes hand in hand with deposit creation and is a “grossing up” of the bank’s balance sheet. When the bank grants a loan, it also creates a deposit. So whilst I know it’s nice to think of “my money at the bank”, the reality is that your “money at the bank” is actually an IOU/deposit/debt that the bank previously created (when they granted a loan) and will, at some point, be destroyed when you or someone else pays back loan capital. Reason being is that I somewhat take issue with economists of the Austrian school or “full reserve bankers” (eg author of OPs article) who fundamentally don’t understand what banks are and how they work. It’s incredible really, because if they took the time to write out the accounting journals for loan creation and destruction then they would, in a single moment, realise that much of what they advocate is in fact complete nonsense. Because, ultimately, banks don’t lend out base money... so they can’t possibly counterfeit it (as Mises claims). Banks also don’t have a special privilege to create “money”/IOUs - we can all do it and we do it all the time, It’s just that the bank’s money is widely accepted and ours is not.

I_am_tiberius 6y ago

Of course one can see it as an advantage. But it's the opposite of freedom. I want to be free.

turbinerneiter 6y ago
How are you less free if the a central bank issues a digital currency? You can still bitcoin all you want.
- I_am_tiberius 6y ago
  Of course I can use Bitcoin if it's still allowed. I was referring to CDBCs.
- lifty 6y ago
  If Bitcoin becomes big enough I think central banks will make a major push to ban it because it would severely diminish their power. My concern is that in such a scenario our monetary freedoms would be severely curtailed, and we would slide further towards a centrally controlled economy.

BLKNSLVR 6y ago

So, the benefit is that it cuts out the untrustworthy commercial banks? That sounds like a failure of politics and regulation; something that technology is a good workaround for, but a poor solution.

perfunctory 6y ago
I am not against commercial banks per se. But me not having to rely on bank deposits for day-to-day payments (I presume we all agree that nobody wants to carry cash around) will force banks to do a better job at attracting my money. Maybe they will have to give me a better interest rate and give me some knobs I can tune to control how my money is invested. Technology can be a catalyst for increasing competition between banks. There might be another (regulatory) way to do it. Whichever gets us there faster.

tonfa 6y ago

> commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store. Central banks have been against direct accounts for retail for this reason, because they didn't want to be in the business of retail lending as well. What would be the alternative there? It seems unlikely that central banks would go into the business of vetting and giving out small business loans. Could a commercial bank function with only giving out loans and no deposit (I guess it would get loans directly from the central bank instead of balancing its balance sheet with deposits?)

perfunctory 6y ago
> Could a commercial bank function with only giving out loans and no deposit As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
- tonfa 6y ago
  > As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent. Not sure it makes sense, can they really compete against a "narrow banking" style bank? Why wouldn't narrow bank compete a better UI/services (and not offer any loans)? https://www.econlib.org/why-does-the-fed-oppose-narrow-banking/ https://www.econlib.org/why-does-the-fed-oppose-narrow-banki... explores a bit that part and the arguments against it.
  - perfunctory 6y ago
    > Not sure it makes sense, can they really compete against a "narrow banking" style bank? Sure they can. They should be able to offer a better interest rate on their deposits. "... new customers is one way, if not the cheapest way, to secure those reserves. Indeed, the current targeted fed funds rate—the rate at which banks borrow from each other—is between 0.25% and 0.75%, well above the 0.01% to 0.02% interest rate the Bank of America pays on a standard checking deposit.5 6 The banks don’t need your money; it’s just cheaper for them to borrow from you than it is to borrow from other banks." [0] Why is that? why is it cheaper for banks to borrow from me than from other banks? I say it's due to the lack of competition. [0]https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b...

rojeee 6y ago

Not to be pedantic but central banks can and do become insolvent! E.g. developing nations with dollar denominated debts. Central bankers will tell you they can’t go bankrupt but of course they have to say this as the whole system is based upon confidence and trust. Indeed, there have been certain periods of time where privately issued money / bank deposits were “safer” than central bank or government issued currency. Also keep in mind that bank deposits are not a promise to pay base money as people mistakenly believe. It’s just that commercial banks are a market maker between their money and the government/base money and it just so happens that the exchange rate is 1:1 unless the solvency of the bank, central bank or government is brought into question. Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan, you swap your IOU (a debt from you to the bank - the bank’s asset) for the bank’s IOU (debt from the bank to you - bank’s liability). You do this because the bank IOU is readily accepted by everyone and yours isn’t. If you just have a deposit, you get it by swapping the IOU from another bank or an IOU from the government (notes and coins) for an IOU with the bank you hold a deposit with. Note that the deposit is not your money either.

perfunctory 6y ago
> Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan Sure. But you don't simply get a loan. A bank (account manager) will make a decision whether they want to give you a loan (with a certain interest) or not. And I don't have any influence on that "decision". This is what I mean when I say "commercial banks invest my money on my behalf without me having any control over the process".
- rojeee 6y ago
  This is true! Sorry, I’m a bit of a nerd about this stuff. I was just making the point that, in accounting terms, the banks don’t invest money... they create and destroy it! Loan creation goes hand in hand with deposit creation and is a “grossing up” of the bank’s balance sheet. When the bank grants a loan, it also creates a deposit. So whilst I know it’s nice to think of “my money at the bank”, the reality is that your “money at the bank” is actually an IOU/deposit/debt that the bank previously created (when they granted a loan) and will, at some point, be destroyed when you or someone else pays back loan capital. Reason being is that I somewhat take issue with economists of the Austrian school or “full reserve bankers” (eg author of OPs article) who fundamentally don’t understand what banks are and how they work. It’s incredible really, because if they took the time to write out the accounting journals for loan creation and destruction then they would, in a single moment, realise that much of what they advocate is in fact complete nonsense. Because, ultimately, banks don’t lend out base money... so they can’t possibly counterfeit it (as Mises claims). Banks also don’t have a special privilege to create “money”/IOUs - we can all do it and we do it all the time, It’s just that the bank’s money is widely accepted and ours is not.