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Can someone explain to me how is this different from how money is in my bank account right now? Is the difference something like an int (just a pure number) vs

by ncann 5y ago

Can someone explain to me how is this different from how money is in my bank account right now? Is the difference something like an int (just a pure number) vs something like an abstract data type like Money where you can have fields like source/destination/purpose/date issued/etc. for indexing and tracking purpose?

kayamon 5y ago
It would of course depend on the solution they go for, but if for example they used a cryptocurrency like Bitcoin, the difference would be that the 'int' in your account right now is forgable -- i.e. the bank can go in and just adjust it up/down as they see fit, with only regulations (i.e. messy human decisions) to stop them. A CBDC backed by a proof-of-work scheme is unforgable, meaning said currency could be transferred between multiple banks (even potentially abroad) without having to worry about whether said bank obeyed all the regulations correctly or not.
- IncRnd 5y ago
  The Federal Government has no desire to run a proof of work system. A digital ledger is all they need for this.
danielmarkbruce 5y ago
This seems a little crazy, but, you don't actually have money in a bank account.... You are owed money by a bank. Everyone is actually passing back and forth IOUs from banks when they pay for things digitally (or by check). It's one reason why there is a lot of complexity behind the scenes when you pay digitally. It's also the reason FDIC insurance exists. If you think about the fact that my "money" is an IOU from Chase and your "money" is an IOU from Bank of America - how do I send you "money"? It's a complicated dance with lots of different database entries. A central bank digital dollar would be IOUs from the central bank. It's closer to cash.
xmly 5y ago
The bank can bankrupt. So your money in bank has credit risk and liquidity risk. But central bank(federal reserve) can "print" dollar, so they will never bankrupt, hence your CBDC has no credit risk or liquidity risk. However, it puts the central bank being the only bank that handles the clearance/settlement. So it has higher political risk for holders. For example, you can store your dollar bills into a bank which does not follow the order from US government. But if you have CBDC, the federal reserve can simply freeze your balance.
- wpietri 5y ago
  Are you talking about non-US banks that have dollar-denominated accounts? Because US banks are insured by the same federal government, making the credit/liquidity risk the same.
  - xmly 5y ago
    FDIC has a limit 250K.
ggamecrazy 5y ago
My understanding: Like you mentioned the main difference is that digital cash is an abstract type. With our current cash we can very easily convert to/from an int currency to physical cash. With digital cash it might be more difficult, potentially intrusive or costly to convert to physical assets (look at crypto). If I take $20 out of my bank account and buy donuts, it's going to be very hard to the government to trace that. That will not be the case for digital cash. They will know the exact wallet that came from. I also believe the need for the Fed for a CBDC is forced onto them because of the inevitability of a negative interest rate on savings accounts (which carries negative consequences). Indirectly, CBDC solves that for them. This person explains it practically: youtu.be/UP0e9MGjyD4
IncRnd 5y ago
In a CBDC type system the Fed may or may not peg to an underlying asset. The paper does discuss the use of stablecoins as problematic. That likely means that the Federal Government doesn't want to peg your digital currency to a dollar or to anything physical. Without that pegging, they won't ever need to worry about a "run on the bank". Your CBDC will literally not be money, and any deposit you ever make for CBDC will have been a gift or maybe a purchase that won't be required to ever be reversed. The C in CBDC is Central. The government wants this centralized not decentralized. They will be able to create any amount of CBDC currency. The government will almost certainly push, along with this type of CBDC, for them to have far greater and more immediate control over your finances. In other words, any one of many government officials will be able to freeze your accounts (or drain them) at the push of a button. Hmm... I think that one of those three people did something bad - BAM - all three CBDC accounts are drained and frozen. Too bad, due to seizure laws, you can't ever get that back. All of the advantages of having a physical note or a $ in a bank account disappear with this system. The government will control the ledger and everything that happens to it. There won't be money - just entries in the government's ledger. You won't be able to walk around with cash or even purchase an ice cream cone for your daughter without the government knowing. That's in the best world. Just wait until the CBDC gets hacked like BTC or ETH. I doubt the government will return your govcoins. PS. The document mentions "key stakeholders" in the CBDC. They aren't talking about people. You and I are not key stakeholders in this endeavor.
logicalmonster 5y ago
The implementation details don't really matter: it's what the government can do with a central digital currency that's different than today. Off the top of my head, here are some possible concerns and avenues for abuse. 1) Today, the government needs at least the pretense of a warrant or at least legislation to allow them to legally snoop into your financial affairs within a bank. Spying on you would probably be a lot easier for them on some kind of central digital currency that they'd manage. Want to buy a 12 pack of giant buttplugs or a Quran? Uncle Sam is going to know about it in our brave new centralized currency world. 2) Cancel culture and removing classes of people from the economy for wrongthink views, or even just actions that their politicians take on their behalf is already a thing. It's not hard to see a future authoritarian government making financial life for their political opponents hell. 3) Programmable centralized money allows central bankers to have unprecedented control to impose policy that would have been close to impossible to implement before. Keynesian thinkers for example view the idea of money flowing through the economy quickly as one of the big avenues to prosperity. It's not hard to see them clamoring for effectively a tax on money that sits in your wallet too long without being spent to promote consumption, or any number of experiments now that the tool exists to make it possible.
- wpietri 5y ago
  What makes you think the Federal Reserve would just give all the data to, say, the FBI without a warrant? You talking about "the government" as a unified entity seems odd to me here. The various bank regulators (FDIC, OCC, and yes, that same Federal Reserve) already have access to huge data flows. If they are already misusing it, it doesn't sound like this would be worse. And if they aren't, then I'm not seeing why that lack of misuse would change.
  - logicalmonster 5y ago
    At this point, does anybody need to give any extra reason for why they can't trust this government or why it's a bad idea to give them power that can be abused so easily?
    - 5y ago

by ncann 5y ago

kayamon 5y ago

It would of course depend on the solution they go for, but if for example they used a cryptocurrency like Bitcoin, the difference would be that the 'int' in your account right now is forgable -- i.e. the bank can go in and just adjust it up/down as they see fit, with only regulations (i.e. messy human decisions) to stop them. A CBDC backed by a proof-of-work scheme is unforgable, meaning said currency could be transferred between multiple banks (even potentially abroad) without having to worry about whether said bank obeyed all the regulations correctly or not.

IncRnd 5y ago
The Federal Government has no desire to run a proof of work system. A digital ledger is all they need for this.

danielmarkbruce 5y ago

This seems a little crazy, but, you don't actually have money in a bank account.... You are owed money by a bank. Everyone is actually passing back and forth IOUs from banks when they pay for things digitally (or by check). It's one reason why there is a lot of complexity behind the scenes when you pay digitally. It's also the reason FDIC insurance exists. If you think about the fact that my "money" is an IOU from Chase and your "money" is an IOU from Bank of America - how do I send you "money"? It's a complicated dance with lots of different database entries. A central bank digital dollar would be IOUs from the central bank. It's closer to cash.

xmly 5y ago

The bank can bankrupt. So your money in bank has credit risk and liquidity risk. But central bank(federal reserve) can "print" dollar, so they will never bankrupt, hence your CBDC has no credit risk or liquidity risk. However, it puts the central bank being the only bank that handles the clearance/settlement. So it has higher political risk for holders. For example, you can store your dollar bills into a bank which does not follow the order from US government. But if you have CBDC, the federal reserve can simply freeze your balance.

wpietri 5y ago
Are you talking about non-US banks that have dollar-denominated accounts? Because US banks are insured by the same federal government, making the credit/liquidity risk the same.
- xmly 5y ago
  FDIC has a limit 250K.

ggamecrazy 5y ago

My understanding: Like you mentioned the main difference is that digital cash is an abstract type. With our current cash we can very easily convert to/from an int currency to physical cash. With digital cash it might be more difficult, potentially intrusive or costly to convert to physical assets (look at crypto). If I take $20 out of my bank account and buy donuts, it's going to be very hard to the government to trace that. That will not be the case for digital cash. They will know the exact wallet that came from. I also believe the need for the Fed for a CBDC is forced onto them because of the inevitability of a negative interest rate on savings accounts (which carries negative consequences). Indirectly, CBDC solves that for them. This person explains it practically: youtu.be/UP0e9MGjyD4

IncRnd 5y ago

In a CBDC type system the Fed may or may not peg to an underlying asset. The paper does discuss the use of stablecoins as problematic. That likely means that the Federal Government doesn't want to peg your digital currency to a dollar or to anything physical. Without that pegging, they won't ever need to worry about a "run on the bank". Your CBDC will literally not be money, and any deposit you ever make for CBDC will have been a gift or maybe a purchase that won't be required to ever be reversed. The C in CBDC is Central. The government wants this centralized not decentralized. They will be able to create any amount of CBDC currency. The government will almost certainly push, along with this type of CBDC, for them to have far greater and more immediate control over your finances. In other words, any one of many government officials will be able to freeze your accounts (or drain them) at the push of a button. Hmm... I think that one of those three people did something bad - BAM - all three CBDC accounts are drained and frozen. Too bad, due to seizure laws, you can't ever get that back. All of the advantages of having a physical note or a $ in a bank account disappear with this system. The government will control the ledger and everything that happens to it. There won't be money - just entries in the government's ledger. You won't be able to walk around with cash or even purchase an ice cream cone for your daughter without the government knowing. That's in the best world. Just wait until the CBDC gets hacked like BTC or ETH. I doubt the government will return your govcoins. PS. The document mentions "key stakeholders" in the CBDC. They aren't talking about people. You and I are not key stakeholders in this endeavor.

logicalmonster 5y ago

The implementation details don't really matter: it's what the government can do with a central digital currency that's different than today. Off the top of my head, here are some possible concerns and avenues for abuse. 1) Today, the government needs at least the pretense of a warrant or at least legislation to allow them to legally snoop into your financial affairs within a bank. Spying on you would probably be a lot easier for them on some kind of central digital currency that they'd manage. Want to buy a 12 pack of giant buttplugs or a Quran? Uncle Sam is going to know about it in our brave new centralized currency world. 2) Cancel culture and removing classes of people from the economy for wrongthink views, or even just actions that their politicians take on their behalf is already a thing. It's not hard to see a future authoritarian government making financial life for their political opponents hell. 3) Programmable centralized money allows central bankers to have unprecedented control to impose policy that would have been close to impossible to implement before. Keynesian thinkers for example view the idea of money flowing through the economy quickly as one of the big avenues to prosperity. It's not hard to see them clamoring for effectively a tax on money that sits in your wallet too long without being spent to promote consumption, or any number of experiments now that the tool exists to make it possible.

wpietri 5y ago
What makes you think the Federal Reserve would just give all the data to, say, the FBI without a warrant? You talking about "the government" as a unified entity seems odd to me here. The various bank regulators (FDIC, OCC, and yes, that same Federal Reserve) already have access to huge data flows. If they are already misusing it, it doesn't sound like this would be worse. And if they aren't, then I'm not seeing why that lack of misuse would change.
- logicalmonster 5y ago
  At this point, does anybody need to give any extra reason for why they can't trust this government or why it's a bad idea to give them power that can be abused so easily?
  - 5y ago