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> This metamorphosis of central banks from the aristocrats of finance to its labourers sounds far-fetched, but it is under way. Over 50 monetary authorities, re

> This metamorphosis of central banks from the aristocrats of finance to its labourers sounds far-fetched, but it is under way. Over 50 monetary authorities, representing the bulk of global GDP, are exploring digital currencies. The article goes on from the premise that digital currencies are something new, but aren't almost all currencies already digital? I mean when a central bank decides to lend to retail banks (last resort) it just updates a column in its system. It doesn't actually print and ship physical currency. What am I missing? Is this just new hot buzz? EDIT: I'm not too familiar with the process of "printing money", but I assume that Fed/central bank just buys some assets, and credits seller's account in its system. That all sounds pretty digital to me.

rawtxapp 5y ago
This brings central bank's control to a whole other level. For example, right now, central bank could loan lots of money to retail banks, but there's no guarantee that those retail banks will in turn loan it to average consumer. With this, they can bypass them alltogether and put it directly in retail's digital wallets. Imagine things like money that self-destroys if you don't spend within certain amount of time or money that you can only spend at a certain place or for a certain purpose. The control that central bank will be able to exert is increasing by like 10 fold.
- inshadows 5y ago
  Eh, that just sounds like central bank going into retail business, nothing more. They'll upgrade their systems to match that of retail banks to manage retail customer money. I still don't see any actual innovation, just monopolization of lending industry. I don't understand your example about money self-destruction. What's the actual innovation that will make this possible and why it's not possible now?
  - hogFeast 5y ago
    Central banks can only create high powered money. How high powered money gets intermediated into actual economic activity is probably one of the largest unknown factors in central banking/monetary policy. This would, in theory, remove that discussion. That being said, if you are familiar with the history of monetary policy across countries, there is already quite a significant spectrum of central banks adopting new approaches to this problem. And it is not particularly evident that removing banks from the equation improves outcomes (although this is one of those lessons that falls in the blind spot of certain popular ideologies today). Simply: when you talk about disintermediation of banks, you get into the discussion of whether central banks are able to make lending decisions better than banks. When this works, as in Japan pre-1991, it works very well...Japan post-1991 demonstrates that it doesn't always work well. Also, this would change the politics of monetary policy. Most monetary systems that disintermediate banks are usually one-party states with extremely high levels of centralization of economic authority (you also tend to see heavily monopolized banking sectors, the US is the polar opposite of this, although this may not apply in this case). I am 95% sure that if you attempt to do this in a democracy, you will Zimbabwe your currency quickly and trigger a move away from democracy (unf, this also falls into a blindspot of lots of people today...economics PHds don't learn this stuff). It is very hard to have stable politics when the winner of an election will gain the power to make their family/their associates/all political allies permanently wealthy. EDIT: because I cannot reply, if you are asking how this fails to change anything...read a monetary policy textbook. There is a deep lack of understanding about basic elements of the financial system here (as ever). This isn't a facetious comment...srs, read a book.
    - shkkmo 5y ago
      I still fail to see how a new digital currency makes this easier compared to just modernizing the US payment infrastructure or letting the central bank provide retail banking services in our current currencies.
    - inshadows 5y ago
      I didn't downvote you, but I haven't grokked your answer yet. Yep, I gotta read something about monetary policy. In any case, I gather that "new digital currency" in this context mean centralization of accounts. EDIT: Do I understand it correctly that under this new system, there would be no money multiplication or IOW no fraction reserve banking?
      - hogFeast 5y ago
        Yes, it does but through that centralization of accounts, you are fundamentally changing how monetary policy operates (again, the concept of high-powered money changes totally...we are talking about the most fundamental aspects of how monetary policy works). If you read about Positive Money, they have written a few books about how this works. A significant simplification is: our monetary policy would be more like Japan pre-1991...but it is more complex than this (the politics of this are also significantly more complex...no-one has written any books about this). But reading something like Mishkin is a better starting point. EDIT: there is no "money multiplier" in the real economy, that is a device used to teach undergraduates...when banks make a loan, they just credit your deposit account, the money doesn't come from anywhere, the bank needs no reserves (reserve requirements are used functionally in China, I don't believe they are functional in the US, and they haven't been a central policy instrument in monetary policy generally since the 60s)...so the central bank "outsources" money creation to private banks, the exact purpose of these proposals is to stop this outsourcing although the actual implementation will vary.
        deleted 5y ago
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        ArnoVW 5y ago
- er4hn 5y ago
  Small correction, put the money directly into the consumers wallets. Since the wallet itself would also be implemented as a bank account, likely controlled by the central entity they would be able to monitor both it's balance as well as where money is spent and transferred to. This enables the implementing of monetary polices such as "Here is $100 to spend on local restaurants within 30 days. Any unused money will be removed on the 31st day."
  - Godel_unicode 5y ago
    Implementing that policy would require the central bank to be doing a wholesale analysis of consumer spending (local restaurants). That's an extreme increase in the amount of citizens information we're giving to the government, for at best a dubious reason.
    - fedreserved 5y ago
      That's the plan Stan. every transaction being recorded, and taking away citizens ability to not report income is the ultimate goal. Get rid of cash, make every transaction knowable, and suddenly the government's ability to collect it's taxes due becomes omnipotent
    - rattlesnakedave 5y ago
      privacy concerns will likely not even be on a central bank’s radar should any of this come to be.
    - er4hn 5y ago
      It does require more data and analysis, but is entirely possible. I'm not taking a stance on this (in reference to your 'dubious' comment) but I'm trying to elaborate on how this would be implemented. Consider a database where each account has the owners name, local address, other demographic data in addition to their account balance. The database also stores their transactions. Now allow businesses to have their own central bank accounts as well. The business has its location and type of business listed as well. Assuming all this data is entered correctly and up to date the implementation of "$100 to be spent in 30 days on local restaurants" is as follows. Assume local is, within 10 miles of the account owners home, as a nonce value: * Add $100 to person's central bank account * Over the next 30 days person buys: shoes locally, a pizza locally, and orders a book from Amazon. * On day 31 the central bank examines all transactions. By referencing each account money was transfered to the bank can lookup distance and type of business. * Remove the unspent amount, if any, from the account. Now, there is a fun edge case here: what if the person spends their $100 credit on books from Amazon instead of food and has no money left? Do they end up with a negative balance? This penalizes both people mispending money as well as those where they spent money at a place that is miscategorized ( for example, the local deli is categorized as a shell corporation ). So clearly the basic idea needs some work, but it is not undoable. Especially if business owners are incentived to have their information be accurate and up to date to recieve monetary funds.
- Godel_unicode 5y ago
  It only makes sense for a retail bank to hold onto that money if it doesn't think lending it out beats holding it on a risk adjusted basis. In other words if banks are sitting on money, they think the risk of not getting it back is worse than the interest they would be getting. Your argument requires them to be wrong about that, which is pretty unlikely given the number of financial crises we've seen caused by a glut of bad debts.
- shkkmo 5y ago
  Normal contracts can accomplish everyone of those things. What is missing your your comment (and the article) is an explanation how how these things are magically easier to do with a new digital currency rather just adding feautures our our existing transaction infrastructures.
  - lazide 5y ago
    For one, existing transaction infrastructures suck terribly with massive legacy tech debt that seems to make it impossible to do even simple things like use chip cards sanely?
    - shkkmo 5y ago
      Yes modernizing the US transaction infrastructure is sorely needed. Other countries have done pretty well at this without introducing a new currency.
      - lazide 5y ago
        For sure, but isn’t it always more fun to make something new then fix tech debt? (I wish this probably isn’t what is going on, but realistically it is undoubtedly playing a part)
        shkkmo 5y ago
        I suspect a new currency will make it significantly more work to implement, even if it sounds more fun.
  - er4hn 5y ago
    The government does not have a contract with each person. The way to implement this currently would be to either: * Have a contract with each bank to give money to them to give to each citizen. This hits problems with trust on the bank, speed of distribution, and how to deal with citizens who have multiple bank accounts. * Issue some set of stimulus checks, tax credits, and require documentation of appropriate spending at tax time. This feels very much like the plot to a modern Kafka novel.
- neilwilson 5y ago
  " For example, right now, central bank could loan lots of money to retail banks, but there's no guarantee that those retail banks will in turn loan it to average consumer." That's because banks don't work like that. Money isn't a thing, it is a unit of account. Banks create money out of nothing by discounting collateral [0]. You turn up with a property, the bank has it valued at $100K. The bank then creates a financial instrument called a 'mortgage' which it holds as an asset on its balance sheet and which is a 'charge' over that property preventing you selling it until you discharge the mortgage. Then they issue $90K of their own liabilities which you call a 'bank deposit' into an account with your name on it. That liability balances the new asset. And that's about it. Loans create deposits. The central bank doesn't get involved in lending at all. Never has. [0]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - kqr 5y ago
    To clarity further: The reserve requirement (banks must maintain so-and-so many percent of their money in central-bank issued reserves) simply means that if, after loans are made, the central bank discovers that the private banking system is low on reserves, the central bank sells new reserves to the banking system to satisfy their demand. In other words, customer demand (which is relatively inflexible: you don't take out loans for fun, you do it because you need them) drives private bank loans, which drives creation of reserves by the central bank. Not the other way around. The market dictates how much money is in circulation, by demanding a particular amount of money. The central bank can't do anything other than oblige, because if demand outpaces supply, our economy will stall.
    - danuker 5y ago
      > which drives creation of reserves by the central bank. Not the other way around. How is it that the Federal Reserve added more than $4 Trillion of M2 currency since the pandemic started? [1] Was it responding to the "increased" credit demand from shut down businesses that see no light at the end of the lockdown tunnel? [1] https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
- onlyrealcuzzo 5y ago
  Is central banks having more control a good thing??
  - danuker 5y ago
    Are you worried some unelected bureaucrats might have other plans with your life's work and savings?
  - lottin 5y ago
    If it enables a wider range of monetary policies or if it makes existing policies more effective, then it's obviously a good thing.
hahaxdxd123 5y ago
Money is definitely digital already, but I think the important aspects of this are the various implications of the central banks adopting modern tech. Take China's e-yuan: 1) You directly have an account at the central bank and spend from it through an app 2) Central bankers can trivially apply stimulus instantly (no fuss about the $1200 like we had) 3) You can do crazy shit in times of recession like money that expires unless you spend it on goods in order to increase the velocity of money 4) Money laundering would be pretty hard. 5) Being able to easily build fintech products on top of it, instead of depending on dumb solutions like Plaid. This sort of thing would be gamechanging IMO.
- HenryKissinger 5y ago
  > money that expires unless you spend it on goods in order to increase the velocity of money So, a gift card, but for everything?
  - BurningFrog 5y ago
    Also like a very steep negative interest rate.
    - thysultan 5y ago
      parabolic charts go brrr.
  - HDMI_Cable 5y ago
    Depends on the area. In some places (Canada, and I think California) gift cards don't expire.
    - deleted 5y ago
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  - zeckalpha 5y ago
deleted 5y ago
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fumblebee 5y ago
Can someone kindly make clear; I read this entire article assuming that the "digital currency" referenced was a drop-in term for a cryptocurrency minted and controlled by a central bank. I realise now I have no idea how China are implementing the e-Yuan.
- fatlasp 5y ago
  I think digital currency in the CBDC (central bank digital) sense is that its "programmable money." For example my understanding is that the beta testers (my term) for the e-yuan literally have 30 days to spend the currency through alipay or whatever they're using or it disappears forever. I'm sort of looking at it as a combo of regular money and smart contracts but thats just me. Interestingly Jim Bianco (who you may see regularly on old-financial media) argues that all of these currencies will fail in favor of the defi stuff that's already being spun up. For example by the time fed coin is even being tested (2025) the technologies behind cryptos will be so mature that the tech the us fed is using (from 2015) will be dead on arrival
  - nmfisher 5y ago
    In 2015 or so, I was really surprised to hear that the Australian Stock Exchange was going full-steam ahead with a blockchain-based settlement platform. From memory, they were targeting 2020 or so for a full rollout. Just checked and this has now been pushed back to 2023. I know that there's been a lot of improvement since then, but once you reach a certain size, things just move very slowly. It's less about the tech, and more about the pace at which stakeholders get on board.
    - fatlasp 5y ago
      as far as I can tell this is what inx.co is doing and they are about to launch. interesting company sounds like they have lofty plans and an executive board that has some interesting people (former nyse and tsx execs). both a platform for 'traditional' crypto but also building an exchange for fully regulated 'digital assets' a la digital representations of stocks etc
Eyght 5y ago
The current system just keeps track of inventory. Like when a warehouse inventory system says "15 Honda Civics currently in stock" it doesn't mean digital cars. A digital currency system would make a digital representation of the actual money that could contain a bunch of information, like unique serialnumbers, creation date, expiration date, physical equivalent etc.
- shkkmo 5y ago
  Except there is no 1-1 relationship between account balances and physical dollar bills. They are not "inventories" but records of balances and transactions. What would have to be added to our current of tracking of dollars digitally for it to qualify as a digital currency?
  - Eyght 5y ago
    When we pay with physical dollar bills, it's an exchange of unique notes with their own serialnumber. A digital currency would be the same thing, but electronic. Imagine using GIT for accounting.
    - shkkmo 5y ago
      Why is a new currency needed for that? All I see is handwavy explanations with zero actual details about how a new digital currency would let us do anything that we can't do more easily without adding a new currency.
      - Eyght 5y ago
        Governments and central banks are doing it to try to continue the cash economy, which has been slowly dying for some time now (a death recently sped up by the pandemic). Cash has some unique benefits over numbers in an account, the primary perhaps being that it's independent of banks.
marcusverus 5y ago
That money in your bank account has value like hard currency, and it can't be transferred between two parties in the same way that hard currency can. Transfers from your bank account require a number of intermediaries, and (in the US) it still takes days to be finalized. A digital currency would not only have value like cash, but would be transferrable like cash. The only middle-men would be the fed (or whoever would be running the currency), who would track transactions to prevent shenanigans (like someone trying to spend the same digital dollar twice). As an aside, the hype around cryptocurrencies is that they offer the same sort of cash-like transferrability, and by using a distributed 'trustless' model, they are able to guarantee safe transactions without the need for a trusted third party like the fed.
- nine_k 5y ago
  But trustless models need some kind of hard-to-forge proof. In the case of gold it's the chemical element. In the case of banknotes, it's really laborious printing (and much more). In the case of bitcoin, it's hard-to-find sha hashes. What would prevent a trustless digital coin from being forged? It's by far easier if we have trusted parties, like with SSL certificates,, or other digitally signed and cross-signed stuff. It of course puts such cash under control of the Fed. But it's sort of expected of a national currency. Also, fully traceable by design digital currency is very unlike untraceable cash. Of course, no government, no law-enforcement agency would miss a chance to make all financial transactions visible. Of course it's only to prevent money laundering from terrible crimes like sex slavery and contract murders, but the ability to know e.g. the sources and targets of any donations would be a nice side benefit.
  - kqr 5y ago
    That gold or bank notes would be hard to forge is somewhat of an exaggeration[1]. History, old and recent, is filled with forged money of both metal and paper kinds. What actually prevents forgery are the harsh punishments for it. Historically, forgery of money was often associated with death penalty. Authorities know that centralised money (both metal and paper) is a brittle illusion that must be maintained by force. All of this to say that ease of forgery might not be a good argument against a currency. Difficulty of forgery might, on the other hand, be a very strong argument for one. [1]: A bit of an anecdotal story, but still illustrative: a few years ago I paid for a thing with coins. The seller asked "What is this?" And I thought to myself "Money?" It turned out there was a good reason for the question: one of the coins was a Canadian cent. I live half a world away from Canada; it just looked a little bit like one of the domestic coins, so I had accepted it from somewhere, who probably had also blindly accepted it from somewhere else. Despite it not being legal tender, it was accepted at a value far above its nominal value in the country where it would be legal tender. This was a coin that didn't even try to look like a domestic coin. It just happened to share some superficial similarities. All of this to say that with just a little bit of effort, you can probably create something that will circulate just fine for a few hands at least.
turtletontine 5y ago
A central observation of modern monetary theory is that all (federal) govt spending is done that way but the fed: the fed just conjures 1 bajillion $ into Lockheed's account, and taxes to "pay for" govt spending happen later. If that's not directly true in details it's true in effect. The next logical steps are that (1) it can never default on debts in its own currency unless it chooses too and (2) we don't need to "pay for" new spending with taxes. (Although taxes are still important for a variety of reasons: providing incentive structures, preventing inflation.)
- lottin 5y ago
  Only financial institutions can have accounts with the Federal Reserve.
  - turtletontine 5y ago
    That's why I said not true in details, but true in effect
- causalmodels 5y ago
  No, governments are constrained by real resources. Deficits probably don’t matter as much as people thought they did, but that doesn’t mean deficit spendings can be unlimited. Plus not all spending is equal. Deficit funding of things like actual (physical) infrastructure doesn’t have the same issues as social programs. Like do we really think Western European countries have broad tax bases because they like it? Using taxes as a means of controlling inflation (raising them when inflation rises) may be true in theory but it is of zero practical importance. Raising taxes during inflationary periods, compounding the loss spending power, is a fantastic way for a politician to lose their job.
- imtringued 5y ago
  MMT boils down to "keeping people unemployed or underemployed against their own will is unethical". Therefore you create money to employ unemployed or underemployed people. The trick is that yes, you are printing money, but you are also "printing" goods and services provided by people who would otherwise stay unemployed or underemployed. Are there any good reasons for keeping people unemployed or underemployed? I can't think of any. People who don't want to work or can't aren't considered unemployed. Who exactly is losing out? That fast food restaurant that is underpaying people? Rich people whose relative wealth vs the poor is growing?
headmelted 5y ago
Yes, most currencies are mostly managed digitally. A better description of the concept may be a centralised digital ledger. Currently the government has a database that tracks what you owe in taxes. Your bank has a database that tracks your savings account. Your pension manager has an account that tracks your retirement investments. And we all just kind of hope that double-entry accounting mostly keeps the whole ship afloat for most of the money. A CBDC would essentially be held on a single ledger by the government. Wherever the money goes is tracked by whoever is holding it, but the single source of truth is the government ledger. It solves a lot accounting problems but introduces privacy concerns.
rahimnathwani 5y ago
"but aren't almost all currencies already digital?" Nope. Individuals cannot own digital dollars. I have dollars in my checking account, but these aren't real dollars. If I have $100 in my checking account, this means Schwab owes me $100. It doesn't mean that I have $100. It doesn't even mean Schwab has $100. https://www.encona.com/posts/central-bank-digital-currencies-misunderstanding https://www.encona.com/posts/central-bank-digital-currencies...

rawtxapp 5y ago

This brings central bank's control to a whole other level. For example, right now, central bank could loan lots of money to retail banks, but there's no guarantee that those retail banks will in turn loan it to average consumer. With this, they can bypass them alltogether and put it directly in retail's digital wallets. Imagine things like money that self-destroys if you don't spend within certain amount of time or money that you can only spend at a certain place or for a certain purpose. The control that central bank will be able to exert is increasing by like 10 fold.

inshadows 5y ago
Eh, that just sounds like central bank going into retail business, nothing more. They'll upgrade their systems to match that of retail banks to manage retail customer money. I still don't see any actual innovation, just monopolization of lending industry. I don't understand your example about money self-destruction. What's the actual innovation that will make this possible and why it's not possible now?
- hogFeast 5y ago
  Central banks can only create high powered money. How high powered money gets intermediated into actual economic activity is probably one of the largest unknown factors in central banking/monetary policy. This would, in theory, remove that discussion. That being said, if you are familiar with the history of monetary policy across countries, there is already quite a significant spectrum of central banks adopting new approaches to this problem. And it is not particularly evident that removing banks from the equation improves outcomes (although this is one of those lessons that falls in the blind spot of certain popular ideologies today). Simply: when you talk about disintermediation of banks, you get into the discussion of whether central banks are able to make lending decisions better than banks. When this works, as in Japan pre-1991, it works very well...Japan post-1991 demonstrates that it doesn't always work well. Also, this would change the politics of monetary policy. Most monetary systems that disintermediate banks are usually one-party states with extremely high levels of centralization of economic authority (you also tend to see heavily monopolized banking sectors, the US is the polar opposite of this, although this may not apply in this case). I am 95% sure that if you attempt to do this in a democracy, you will Zimbabwe your currency quickly and trigger a move away from democracy (unf, this also falls into a blindspot of lots of people today...economics PHds don't learn this stuff). It is very hard to have stable politics when the winner of an election will gain the power to make their family/their associates/all political allies permanently wealthy. EDIT: because I cannot reply, if you are asking how this fails to change anything...read a monetary policy textbook. There is a deep lack of understanding about basic elements of the financial system here (as ever). This isn't a facetious comment...srs, read a book.
  - shkkmo 5y ago
    I still fail to see how a new digital currency makes this easier compared to just modernizing the US payment infrastructure or letting the central bank provide retail banking services in our current currencies.
  - inshadows 5y ago
    I didn't downvote you, but I haven't grokked your answer yet. Yep, I gotta read something about monetary policy. In any case, I gather that "new digital currency" in this context mean centralization of accounts. EDIT: Do I understand it correctly that under this new system, there would be no money multiplication or IOW no fraction reserve banking?
    - hogFeast 5y ago
      Yes, it does but through that centralization of accounts, you are fundamentally changing how monetary policy operates (again, the concept of high-powered money changes totally...we are talking about the most fundamental aspects of how monetary policy works). If you read about Positive Money, they have written a few books about how this works. A significant simplification is: our monetary policy would be more like Japan pre-1991...but it is more complex than this (the politics of this are also significantly more complex...no-one has written any books about this). But reading something like Mishkin is a better starting point. EDIT: there is no "money multiplier" in the real economy, that is a device used to teach undergraduates...when banks make a loan, they just credit your deposit account, the money doesn't come from anywhere, the bank needs no reserves (reserve requirements are used functionally in China, I don't believe they are functional in the US, and they haven't been a central policy instrument in monetary policy generally since the 60s)...so the central bank "outsources" money creation to private banks, the exact purpose of these proposals is to stop this outsourcing although the actual implementation will vary.
      - deleted 5y ago
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      - ArnoVW 5y ago
er4hn 5y ago
Small correction, put the money directly into the consumers wallets. Since the wallet itself would also be implemented as a bank account, likely controlled by the central entity they would be able to monitor both it's balance as well as where money is spent and transferred to. This enables the implementing of monetary polices such as "Here is $100 to spend on local restaurants within 30 days. Any unused money will be removed on the 31st day."
- Godel_unicode 5y ago
  Implementing that policy would require the central bank to be doing a wholesale analysis of consumer spending (local restaurants). That's an extreme increase in the amount of citizens information we're giving to the government, for at best a dubious reason.
  - fedreserved 5y ago
    That's the plan Stan. every transaction being recorded, and taking away citizens ability to not report income is the ultimate goal. Get rid of cash, make every transaction knowable, and suddenly the government's ability to collect it's taxes due becomes omnipotent
  - rattlesnakedave 5y ago
    privacy concerns will likely not even be on a central bank’s radar should any of this come to be.
  - er4hn 5y ago
    It does require more data and analysis, but is entirely possible. I'm not taking a stance on this (in reference to your 'dubious' comment) but I'm trying to elaborate on how this would be implemented. Consider a database where each account has the owners name, local address, other demographic data in addition to their account balance. The database also stores their transactions. Now allow businesses to have their own central bank accounts as well. The business has its location and type of business listed as well. Assuming all this data is entered correctly and up to date the implementation of "$100 to be spent in 30 days on local restaurants" is as follows. Assume local is, within 10 miles of the account owners home, as a nonce value: * Add $100 to person's central bank account * Over the next 30 days person buys: shoes locally, a pizza locally, and orders a book from Amazon. * On day 31 the central bank examines all transactions. By referencing each account money was transfered to the bank can lookup distance and type of business. * Remove the unspent amount, if any, from the account. Now, there is a fun edge case here: what if the person spends their $100 credit on books from Amazon instead of food and has no money left? Do they end up with a negative balance? This penalizes both people mispending money as well as those where they spent money at a place that is miscategorized ( for example, the local deli is categorized as a shell corporation ). So clearly the basic idea needs some work, but it is not undoable. Especially if business owners are incentived to have their information be accurate and up to date to recieve monetary funds.
Godel_unicode 5y ago
It only makes sense for a retail bank to hold onto that money if it doesn't think lending it out beats holding it on a risk adjusted basis. In other words if banks are sitting on money, they think the risk of not getting it back is worse than the interest they would be getting. Your argument requires them to be wrong about that, which is pretty unlikely given the number of financial crises we've seen caused by a glut of bad debts.
shkkmo 5y ago
Normal contracts can accomplish everyone of those things. What is missing your your comment (and the article) is an explanation how how these things are magically easier to do with a new digital currency rather just adding feautures our our existing transaction infrastructures.
- lazide 5y ago
  For one, existing transaction infrastructures suck terribly with massive legacy tech debt that seems to make it impossible to do even simple things like use chip cards sanely?
  - shkkmo 5y ago
    Yes modernizing the US transaction infrastructure is sorely needed. Other countries have done pretty well at this without introducing a new currency.
    - lazide 5y ago
      For sure, but isn’t it always more fun to make something new then fix tech debt? (I wish this probably isn’t what is going on, but realistically it is undoubtedly playing a part)
      - shkkmo 5y ago
        I suspect a new currency will make it significantly more work to implement, even if it sounds more fun.
- er4hn 5y ago
  The government does not have a contract with each person. The way to implement this currently would be to either: * Have a contract with each bank to give money to them to give to each citizen. This hits problems with trust on the bank, speed of distribution, and how to deal with citizens who have multiple bank accounts. * Issue some set of stimulus checks, tax credits, and require documentation of appropriate spending at tax time. This feels very much like the plot to a modern Kafka novel.
neilwilson 5y ago
" For example, right now, central bank could loan lots of money to retail banks, but there's no guarantee that those retail banks will in turn loan it to average consumer." That's because banks don't work like that. Money isn't a thing, it is a unit of account. Banks create money out of nothing by discounting collateral [0]. You turn up with a property, the bank has it valued at $100K. The bank then creates a financial instrument called a 'mortgage' which it holds as an asset on its balance sheet and which is a 'charge' over that property preventing you selling it until you discharge the mortgage. Then they issue $90K of their own liabilities which you call a 'bank deposit' into an account with your name on it. That liability balances the new asset. And that's about it. Loans create deposits. The central bank doesn't get involved in lending at all. Never has. [0]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- kqr 5y ago
  To clarity further: The reserve requirement (banks must maintain so-and-so many percent of their money in central-bank issued reserves) simply means that if, after loans are made, the central bank discovers that the private banking system is low on reserves, the central bank sells new reserves to the banking system to satisfy their demand. In other words, customer demand (which is relatively inflexible: you don't take out loans for fun, you do it because you need them) drives private bank loans, which drives creation of reserves by the central bank. Not the other way around. The market dictates how much money is in circulation, by demanding a particular amount of money. The central bank can't do anything other than oblige, because if demand outpaces supply, our economy will stall.
  - danuker 5y ago
    > which drives creation of reserves by the central bank. Not the other way around. How is it that the Federal Reserve added more than $4 Trillion of M2 currency since the pandemic started? [1] Was it responding to the "increased" credit demand from shut down businesses that see no light at the end of the lockdown tunnel? [1] https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
onlyrealcuzzo 5y ago
Is central banks having more control a good thing??
- danuker 5y ago
  Are you worried some unelected bureaucrats might have other plans with your life's work and savings?
- lottin 5y ago
  If it enables a wider range of monetary policies or if it makes existing policies more effective, then it's obviously a good thing.

hahaxdxd123 5y ago

Money is definitely digital already, but I think the important aspects of this are the various implications of the central banks adopting modern tech. Take China's e-yuan: 1) You directly have an account at the central bank and spend from it through an app 2) Central bankers can trivially apply stimulus instantly (no fuss about the $1200 like we had) 3) You can do crazy shit in times of recession like money that expires unless you spend it on goods in order to increase the velocity of money 4) Money laundering would be pretty hard. 5) Being able to easily build fintech products on top of it, instead of depending on dumb solutions like Plaid. This sort of thing would be gamechanging IMO.

HenryKissinger 5y ago
> money that expires unless you spend it on goods in order to increase the velocity of money So, a gift card, but for everything?
- BurningFrog 5y ago
  Also like a very steep negative interest rate.
  - thysultan 5y ago
    parabolic charts go brrr.
- HDMI_Cable 5y ago
  Depends on the area. In some places (Canada, and I think California) gift cards don't expire.
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- zeckalpha 5y ago

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fumblebee 5y ago

Can someone kindly make clear; I read this entire article assuming that the "digital currency" referenced was a drop-in term for a cryptocurrency minted and controlled by a central bank. I realise now I have no idea how China are implementing the e-Yuan.

fatlasp 5y ago
I think digital currency in the CBDC (central bank digital) sense is that its "programmable money." For example my understanding is that the beta testers (my term) for the e-yuan literally have 30 days to spend the currency through alipay or whatever they're using or it disappears forever. I'm sort of looking at it as a combo of regular money and smart contracts but thats just me. Interestingly Jim Bianco (who you may see regularly on old-financial media) argues that all of these currencies will fail in favor of the defi stuff that's already being spun up. For example by the time fed coin is even being tested (2025) the technologies behind cryptos will be so mature that the tech the us fed is using (from 2015) will be dead on arrival
- nmfisher 5y ago
  In 2015 or so, I was really surprised to hear that the Australian Stock Exchange was going full-steam ahead with a blockchain-based settlement platform. From memory, they were targeting 2020 or so for a full rollout. Just checked and this has now been pushed back to 2023. I know that there's been a lot of improvement since then, but once you reach a certain size, things just move very slowly. It's less about the tech, and more about the pace at which stakeholders get on board.
  - fatlasp 5y ago
    as far as I can tell this is what inx.co is doing and they are about to launch. interesting company sounds like they have lofty plans and an executive board that has some interesting people (former nyse and tsx execs). both a platform for 'traditional' crypto but also building an exchange for fully regulated 'digital assets' a la digital representations of stocks etc

Eyght 5y ago

The current system just keeps track of inventory. Like when a warehouse inventory system says "15 Honda Civics currently in stock" it doesn't mean digital cars. A digital currency system would make a digital representation of the actual money that could contain a bunch of information, like unique serialnumbers, creation date, expiration date, physical equivalent etc.

shkkmo 5y ago
Except there is no 1-1 relationship between account balances and physical dollar bills. They are not "inventories" but records of balances and transactions. What would have to be added to our current of tracking of dollars digitally for it to qualify as a digital currency?
- Eyght 5y ago
  When we pay with physical dollar bills, it's an exchange of unique notes with their own serialnumber. A digital currency would be the same thing, but electronic. Imagine using GIT for accounting.
  - shkkmo 5y ago
    Why is a new currency needed for that? All I see is handwavy explanations with zero actual details about how a new digital currency would let us do anything that we can't do more easily without adding a new currency.
    - Eyght 5y ago
      Governments and central banks are doing it to try to continue the cash economy, which has been slowly dying for some time now (a death recently sped up by the pandemic). Cash has some unique benefits over numbers in an account, the primary perhaps being that it's independent of banks.

marcusverus 5y ago

That money in your bank account has value like hard currency, and it can't be transferred between two parties in the same way that hard currency can. Transfers from your bank account require a number of intermediaries, and (in the US) it still takes days to be finalized. A digital currency would not only have value like cash, but would be transferrable like cash. The only middle-men would be the fed (or whoever would be running the currency), who would track transactions to prevent shenanigans (like someone trying to spend the same digital dollar twice). As an aside, the hype around cryptocurrencies is that they offer the same sort of cash-like transferrability, and by using a distributed 'trustless' model, they are able to guarantee safe transactions without the need for a trusted third party like the fed.

nine_k 5y ago
But trustless models need some kind of hard-to-forge proof. In the case of gold it's the chemical element. In the case of banknotes, it's really laborious printing (and much more). In the case of bitcoin, it's hard-to-find sha hashes. What would prevent a trustless digital coin from being forged? It's by far easier if we have trusted parties, like with SSL certificates,, or other digitally signed and cross-signed stuff. It of course puts such cash under control of the Fed. But it's sort of expected of a national currency. Also, fully traceable by design digital currency is very unlike untraceable cash. Of course, no government, no law-enforcement agency would miss a chance to make all financial transactions visible. Of course it's only to prevent money laundering from terrible crimes like sex slavery and contract murders, but the ability to know e.g. the sources and targets of any donations would be a nice side benefit.
- kqr 5y ago
  That gold or bank notes would be hard to forge is somewhat of an exaggeration[1]. History, old and recent, is filled with forged money of both metal and paper kinds. What actually prevents forgery are the harsh punishments for it. Historically, forgery of money was often associated with death penalty. Authorities know that centralised money (both metal and paper) is a brittle illusion that must be maintained by force. All of this to say that ease of forgery might not be a good argument against a currency. Difficulty of forgery might, on the other hand, be a very strong argument for one. [1]: A bit of an anecdotal story, but still illustrative: a few years ago I paid for a thing with coins. The seller asked "What is this?" And I thought to myself "Money?" It turned out there was a good reason for the question: one of the coins was a Canadian cent. I live half a world away from Canada; it just looked a little bit like one of the domestic coins, so I had accepted it from somewhere, who probably had also blindly accepted it from somewhere else. Despite it not being legal tender, it was accepted at a value far above its nominal value in the country where it would be legal tender. This was a coin that didn't even try to look like a domestic coin. It just happened to share some superficial similarities. All of this to say that with just a little bit of effort, you can probably create something that will circulate just fine for a few hands at least.

turtletontine 5y ago

A central observation of modern monetary theory is that all (federal) govt spending is done that way but the fed: the fed just conjures 1 bajillion $ into Lockheed's account, and taxes to "pay for" govt spending happen later. If that's not directly true in details it's true in effect. The next logical steps are that (1) it can never default on debts in its own currency unless it chooses too and (2) we don't need to "pay for" new spending with taxes. (Although taxes are still important for a variety of reasons: providing incentive structures, preventing inflation.)

lottin 5y ago
Only financial institutions can have accounts with the Federal Reserve.
- turtletontine 5y ago
  That's why I said not true in details, but true in effect
causalmodels 5y ago
No, governments are constrained by real resources. Deficits probably don’t matter as much as people thought they did, but that doesn’t mean deficit spendings can be unlimited. Plus not all spending is equal. Deficit funding of things like actual (physical) infrastructure doesn’t have the same issues as social programs. Like do we really think Western European countries have broad tax bases because they like it? Using taxes as a means of controlling inflation (raising them when inflation rises) may be true in theory but it is of zero practical importance. Raising taxes during inflationary periods, compounding the loss spending power, is a fantastic way for a politician to lose their job.
imtringued 5y ago
MMT boils down to "keeping people unemployed or underemployed against their own will is unethical". Therefore you create money to employ unemployed or underemployed people. The trick is that yes, you are printing money, but you are also "printing" goods and services provided by people who would otherwise stay unemployed or underemployed. Are there any good reasons for keeping people unemployed or underemployed? I can't think of any. People who don't want to work or can't aren't considered unemployed. Who exactly is losing out? That fast food restaurant that is underpaying people? Rich people whose relative wealth vs the poor is growing?

headmelted 5y ago

Yes, most currencies are mostly managed digitally. A better description of the concept may be a centralised digital ledger. Currently the government has a database that tracks what you owe in taxes. Your bank has a database that tracks your savings account. Your pension manager has an account that tracks your retirement investments. And we all just kind of hope that double-entry accounting mostly keeps the whole ship afloat for most of the money. A CBDC would essentially be held on a single ledger by the government. Wherever the money goes is tracked by whoever is holding it, but the single source of truth is the government ledger. It solves a lot accounting problems but introduces privacy concerns.

rahimnathwani 5y ago

"but aren't almost all currencies already digital?" Nope. Individuals cannot own digital dollars. I have dollars in my checking account, but these aren't real dollars. If I have $100 in my checking account, this means Schwab owes me $100. It doesn't mean that I have $100. It doesn't even mean Schwab has $100. https://www.encona.com/posts/central-bank-digital-currencies-misunderstanding https://www.encona.com/posts/central-bank-digital-currencies...