Central Bank Digital Currencies are coming. This is something that is not likely to reverse course. All countries of any size are looking into the feasibility of bringing them out. This is headlined by China which already ran a number of trials with the new currency.
CBDCs are the establishment's response to cryptocurrency. This is a digital currency but in no way reflects what cryptocurrency is trying to accomplish. It is another attempt to give more power to a historically corrupt group of individuals.
These currencies, although they have the words "central bank" in them, are not really favoring that group. Instead, this is a move that enhances government personnel, i.e. politicians and bureaucrats. It is a dangerous road to head down since that just hands more power to people who have shown themselves to be apt to abuse said power.
Instead of creating a more decentralized system like cryptocurrency initiates, CBDCs will simply consolidate power into fewer hands.
Presently, developed countries have monetary and fiscal policy separated. While the line is blurring, it is still there. Plus, there is a commercial banking system that is completely separate from the government. They handle most of the financial policy that is implemented, as spelled out by market forces, regulations, and laws enacted.
Giving the government CBDCs is like making Dr. Mengele the head of healthcare. More power in the hands of psychopaths is never a good thing.
This is something that the banking industry is just starting to realize. Analysts at Morgan Stanley concluded that banks would see an 8% reduction in deposits if the ECB adopted a digital Euro. This is because a portion of deposits would be held in digital wallets, controlled by the ECB.
Essentially, this is the beginning of the end for the banking system as we know it. While many might feel that is a good thing, be careful what you wish for. As bad as the banks are, the alternative in this instance is much worse.
Most banks make their money from deposits. That is the core of their business. People put their money in the bank while receiving some form of interest. This is then either lent out or invested in interest paying assets that provide a return greater than what the depositor receives. The difference, of course, is the banks profit.
The 8% figure is just a start to what the banks would see. Over time, it is easy to envision a greater amount of the money supply being in the digital form. This would remove deposits from the banking system and place them in the digital wallets.
Here is the dilemma: as bad as the bankers are, politicians and bureaucrats are much worse. The former operates in a manner to make money. Their corruption is fairly straight forward and does not change. Plus, they will defend their interest against government intrusion. Ironically, often, these interests coincide with the general public.
Governments tend not to operate that way. Handing them programmable money is very dangerous.
Here is an example. The bold is my emphasis.
The analysts’ estimates were based on a “bear case” scenario where all euro area citizens above the age of 15 sent 3,000 euros ($3,637) into a digital euro wallet controlled by the European Central Bank. As previously reported, this amount could be a theoretical limit of total CBDC holdings by residents, according to ECB executive board member Fabio Panetta.
While the highlighted statement is in reference to the amount that is held as compared to the regular EURO, it does emphasize the power that is being erected. What if this meant that each person could only hold 3,000 EURO? In other words, if one did not spend the money, it would be lost.
Here is where we see the power shift. Monetary policy is handled by central banks who, as part of their approach, set the base interest rate. This is done in an effort to stimulate or cool down economic activity.
CBDCs simply move that power to the political establishment. For example, if the government decided it wanted negative interest rates, it simply could instill a 2% reduction of each account yearly. Thus, instead of making $2 on $100 deposited, one would lost that same amount. Does anyone think the politicians would resist getting their hands on that money? Therefore, we could see savings go away.
Of course, it gets worse. This is programmable money so the government could decide what you spend it on. That is a feature that has not really been experimented with yet in the cryptocurrency industry but it is there. All monies can be programmed with time lapse, usage restrictions, and anything else that is coded in there.
With governments, we can easily forecast, depending upon who is in power, how this can be done. Want to get an abortion? Fine except you can't pay for it. How about buying ammunition for those guns? Nope that is gone. Prefer to donate to a religious organization? Better give them furniture because the money transfers will be denied. Do you like to give to the RNC, DNC or your favorite political candidate? That could be "censored".
Or how about anything on this list:
- cigarettes
- alcohol
- fatty foods
- natural medicine
- environmental groups
- certain books or music downloads
- particular speakers or content creators
Ultimately, CBDCs will eliminate the need to outlaw much of anything. Simply program the money so they cannot receive it. Unlike today, no court order is required.
This is the power that the governments are looking at amassing.
Then we see the matter of taxes. This is something that could be instant. From the second a transaction takes place, the tax can be removed. Just consider how much money that would remove from economic activity and put in the hands of government. Sure, when one does the yearly return, the money can be refunded. However, that money is not available to the individual or entity for that time period.
Hence, the push towards CBDCs by governments is not as much about the elimination of cash as it is control and the reduction of the banking system. This move will put all monetary policy in the hands of politicians, something that is far more dangerous than in the hands of central banks. Couple that with the fact that policies are implemented by bureaucrats who are unelected and we see how bad this really is.
Of course, the banking system is just starting to wake up to the fact this is not good for them. Perhaps it is time the general population started to realize how bad it is for them also.
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