There is a lot of talk about a Central Bank Digital Currency (CBDC). Most countries are looking at it and politicians think of it as a way to amass more power. Of course, as bad as the bankers are at managing monetary policy, can you imagine what politicians would do? That, however, is the topic for another article.
Herein, we are going to deal with the fact that Chairman Jerome Powell is playing the rhetoric game very well. He understands Washington and what it takes to appease the political establishment.
A lot of what he said of late is confirmation of a non-confirmation. It is really amazing how people jump to conclusions. The guy is very good at leaving the door open to reverse course. He does telegraph some of his moves but in subtle ways the establishment and the media miss. I guess when ones are driven by ideology, they miss a great deal.
CBDCs Are Not For Bankers
Central Banks Digital Currencies are not to the benefit of bankers. In fact, it is the demise of them if they go through. That is why, in the end, the Fed is not going to embrace this path.
So if that is the case, why does Powell keep talking about looking into them and how they are preparing a report?
The answer lies in the fact that his power is dwindling. His term expires early next year and he has to get appointed again. Thus, he has to ensure that President Biden puts Powell before the Senate.
If Biden does that, it will be a likely slam dunk through Congress. That is, unless Powell does something to screw that up. Therefore, he is not going to rock the boat whatsoever. He can play the rhetoric game for another couple months.
We actually are getting closer to the point of no return with this anyway. Time is required to vet other people if Powell is not going to be Biden's choice. With roughly 4 months until the next term starts, Biden would need to move quick if he is going in another direction.
Therefore, once he get a second term secured, he will have his power restored.
Make no mistake, Powell is a banker. He worked in that industry when he was not in government and made a fortune there. He thinks like a banker and is dedicated to them. His loyalty is not to a bunch of politicians.
Therefore, unless a CBDC favors the banking industry, Powell will do all he can to resist it. Once the political game is over, he will put forth an earnest argument against it.
Death To Commercial Banking
A CBDC is death to much of the commercial banking system. By now, most are aware that a digital wallet can replace the banking services for the majority of the population. Since most only use a bank for sending, storing, and receiving money, a digital wallet would suffice. This would remove a lot of money from the banking system.
For many this is a welcomed idea. The problem is it means jumping out of the frying pan and into the fire. While the bankers are bad, in my view politicians are worse. A CBDC is far worse than the existing banking system, even as bad as it is.
We also would see a situation whereby a CBDC would require so many regulations if there were protections put in place for the banking system. At that point, there would be a competition between the two, which would necessitate a lot of regulation. FinTech already did a number on the banking industry, something they are not about to overlook again.
A big part of this equation is going to be where loyalties reside. With the Fed, the Chair and Vice-Chair are really the only two opinions that matter. That is why it is tough to get a hold of the thinking when the Chair is playing politics. However, come February, if he still has that, the brass knuckles will come out.
Over the years, we know how the Fed chair has tolerated those on Capitol Hill. Each time the Chair goes in front of Congress, you get the grandstanding by a bunch of politicians who tend to have no clue what they are talking about. The people at the Fed are well aware of this.
Powell is reported to be worth in excess of $100 million. Money, he does not need. That is why he is fighting to keep his job. He is, presently, one of the most powerful people in the world. His goal is to retain power.
Of course, that will not be long-lived if he hands power over to the politicians through a CBDC. That would make the Fed pretty much impotent. Powell is smart enough to realize how fatal that would be.
So watch for reports, studies, and other forms of stall tactics to come out of Powell. He will keep stringing the politicians along until he gets what he wants: another term. At that point, I believe he will turn on them very quickly regarding a CBDC, although he will do it in a very political manner. The guy does know how to play the game.
In the end, watch for the Fed to pursue its own best interests, not that of those on Capitol Hill.
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