Central Bank Digital Currency
Contextual Quotes
1.
"In the coming years, CBDCs will replace cash with digital currencies that are stored on a ledger maintained by central banks. Users download a digital wallet to their mobile phone to receive their salary and to pay for goods and services. With a global CBDC network, users would be able to transfer money instantly to other digital wallets anywhere in the world."
- Jan Krikke [1]
2.
"Our economies are held together by three layers of money, with the government issuing the first layer, the banking sector issuing a second layer of ‘digital casino chips’, and players like PayPal issuing a third layer of chips built upon the bank chips (learn more in The Casino Chip Society). The end result is that you and I have a choice between Layer 1 state-issued physical cash, Layer 2 bank-issued digital chips, and Layer 3 corporate-issued digital chips. The so-called ‘cashless society’ refers to the situation in which the first option is removed, leaving us captured by the other two, but this has now been complicated by the arrival of a hypothetical new player called CBDC - central bank digital currency. If this were introduced, it would be a form of Layer 1 state-issued digital money, to supposedly co-exist alongside cash. It would be a bit like having an online account at your country’s central bank, which is something you can’t have right now."
- Brett Scott [2]
Status
Jan Krikke:
"China leads in the deployment of CBDCs. The e-yuan is now available in 17 Chinese provinces and 26 cities. More than 250 million people have downloaded the digital wallet from the People’s Bank of China (PBOC). Local governments and state-owned companies are paying salaries in digital yuan to encourage the use of CBDCs.
Tests are currently under way on internationalizing CBDCs. The PBOC, the International Monetary Fund (IMF), the Bank for International Settlements, and other monetary authorities are working on the “rails” that can make CBDC platforms interoperable. A global network of CBDC planforms would enable cross-border payments in real time and at no cost to the user.
CBDCs use a modified version of blockchain, the distributed (non-centralized) ledger technology used to validate transactions of crypto coins like Bitcoin and Ethereum. Unlike cryptocurrencies, CBDC platforms of central banks are centralized. CBDC platforms are under the control of national governments."
(https://asiatimes.com/2023/09/redesigning-global-finance/)
Discussion 1
Why Central Banks are reluctant players in the CBDC game
Brett Scott:
"There’s a high chance that central banks are reluctantly experimenting with (opening up access to) CBDC because their private sector partners have fucked up by attacking the public money – physical cash – that underpins confidence in private sector money.
If I was to put a Marxist hat on, I’d talk about the ‘contradictions of capitalism’: when a bunch of corporations all individually pursue their individual interests, they often collectively create conditions that undermine their collective interests.
For example, commercial banks are private profit-seeking entities that want to automate everything to cut costs. This means they want to get rid of all their physical branches, which in turn reduces the ability for businesses to deposit cash, which in turn pushes more businesses towards ‘going cashless’, which in turn sends signals into the public that there is something unacceptable about cash. Banks also want to shut down their physical ATMs, which in turn reduces the public’s access to cash, which in turn makes cash seem relatively more inconvenient than before.
This is convenient for the banks, because while they undermine the Layer 1 cash infrastructure, they are also doing everything within their power to steer people into their Layer 2 digital payments systems that give them revenues and data. They are helped in this task by the card companies like Visa and Mastercard, which make all their profits by getting people to stop using cash, and who have drip-fed the public anti-cash propaganda for decades (check out Cloudmoney for more on this). In the background, Big Tech players like Amazon are on board with all of this, because they want to automate everything, and cash is resistant to automation.
Each individual bank is privately run, and see an anti-cash stance as being in their private interest. They are predictably doing what you’d expect a capitalist corporation to do, and they don’t think about the broader consequences of that. When I say ‘broader consequences’, I don’t only mean the ‘externalities’ that are pushed upon us as a result of a cashless society (like possible mass surveillance, censorship, exclusion, resilience problems, centralisation of power etc.), but also things that will come back to bite the banking sector. One of these is the fact that the power of their Layer 2 digital chips depends on the public believing they can be redeemed for state money, but the banks are collectively eroding the state money infrastructure in order to boost profits.
So, big private sector players have individual incentives to destroy cash, but collectively that screws them over. For a long time central bankers didn’t think too much about this, and have allowed it. Since the pandemic, however, the private sector anti-cash drive was massively accelerated, because Big Finance, Big Tech and Big Retail weaponised the public’s temporary fear of physical contact to amplify the anti-cash automation agenda that they already had. Suddenly central bankers are more aware of the possibility that the contradictions of capitalism could undermine financial stability. So, what pops into their head? Layer 1 money underpins Layer 2 money, but Layer 1 money is being eroded, so to save Layer 2 money we must give the public access to a new form of Layer 1 money.
The old balance of power between Layer 1 and 2 money depended on a kind of differentiation in vibe. Cash is public, offline and privacy-preserving, while digital bank chips are corporate, online, privacy-invading and require accounts. These differences historically have given them different spheres of influence: cash is the state money which is good for small-scale local transactions settled on the spot, and it also forms the mental image of ‘money’ for most of the public. Bank chips, by contrast, are easier for large-scale and distant transactions, but they are invisible and intangible and derive their power and imagery from state money. But now we’re seeing cash being undermined in the places where it was historically strongest - the local and the physical - and the balance of power is getting wrecked.
For central banks, this is creating conflict between their different mandates. In order to maintain stability, the central bank feels pressure to create a new alternative - CBDC - but when public money comes in a digital form its vibe changes, and it suddenly feels a lot closer to being in direct competition with the banking sector. In a nutshell, central banks are being pushed towards direct competition with the private sector players they are supposed to promote."
(https://brettscott.substack.com/p/cbdc-analysis)
Tokenization Strategies and unified ledgers for a a globally integrated CBDC platform
Jan Krikke:
"This year, the Bank for International Settlements published a speech by Hyun Song Shin, head of research at the BIS, titled “A Blueprint for the Future Monetary System.” The report included a chapter on tokenization and listed the key points:
A new type of financial market infrastructure – a unified ledger – could capture the full benefits of tokenization by combining central bank money, tokenized deposits and tokenized assets on a programmable platform.
Multiple ledgers – each with a specific use case – might co-exist, interlinked by application programming interfaces to ensure interoperability as well as promote financial inclusion and a level playing field. The picture that emerges from the combination of CBDCs, tokenization, and a unified ledger is a globe-spanning network of central banks, each with their own laws and regulations, but interoperable with CBDC platforms in all other countries that adhere to a common protocol.
The BIS was not the first to envisage a globally integrated CBDC platform. In 2021, China proposed a protocol for CBDCs that includes rules on how they can be used around the world and what information they can share.
A tokenized global financial system combines centralization (on a domestic level) with decentralization (on a global level). Domestically, the central government is the gatekeeper; globally, there is no gatekeeper except the commonly agreed-upon protocol.
A global interoperable CBDC platform would transform the concept of money. Multiple currencies and tokens of tangible assets could be traded seamlessly in real time. A unified ledger creates simplicity through complexity. It would have only two kinds of users: debtors and creditors.
Opponents of the digitization of the financial system fear that CBDCs would lead to an Orwellian world. They note that governments could track how, when, and where people spend their money. Proponents argue that CBDCs would create the hyper-transparency that is needed to combat fraud, corruption, and inequality.
On the plus side, each country can decide how to implement its CBDC platforms and how it interacts with foreign platforms. Autonomy and ethical governance are key. Opposition to CBDCs tends to be higher in countries where trust in government is low."
(https://asiatimes.com/2023/09/redesigning-global-finance/)
The Critiques
"Some public banking advocates are concerned about that development. One such advocate is British Prof. Richard Werner, who laid out his cautions five years ago in a paper presented at the 14th Rhodes Forum in Greece . Werner argued that central banks are in the process of consolidating their powers. Having achieved total independence from government and total lack of accountability to the people, they now want to eliminate competition in the form of both paper money and bank-created credit-money and control the issuance of money completely. To do this, he said, they are driving both cash and bank credit out of business by imposing negative interest rates, which have already been tested in some European countries. Werner argued that negative interest rates were designed not to stimulate the economy but to create deflation and wreak further havoc — “havoc that they intend to instrumentalise to accelerate their goal of becoming the complete masters of our lives, by allowing only digital currency that they issue and control – and that they can monitor in terms of all transactions, and that they can switch off, if, for instance, some pesky dissident criticizes them too much.”
In 2016, that may have sounded radically conspiratorial. But as libertarian commentator George Gammon observed in a podcast episode this past summer called the “The Future of America: Social Scores, CBDC, Health Passports,” the technology is now in place to take us to that very dystopian future. Federal governments already have the tools and legal framework to see everyone’s transactions and to order bank accounts closed. But a CBDC could facilitate the process, as Agustin Carstens, a member of the Financial Stability Board in Basel, observed at an annual meeting of the International Monetary Fund in October of last year. Carstens said that CBDC, unlike cash, gives the central bank absolute control over the rules and regulations respecting its use and the technology to enforce those rules."
Early CBDC proposals were attacks on banking sector power
Brett Scott:
"Meditation 3 takes us into some of the hidden political history of (one version of) the CBDC idea. For a long time it was not a mainstream idea, but was advocated by quite radical groups who were critical of the mainstream central banking and commercial banking establishment. Let me explain.
Big players like Citibank and Chase traditionally dominate the digital money system, because they issue the Layer 2 digital ‘casino chips’ that we see in our bank accounts. They create a significant proportion of those chips through a process called Credit Creation of Money (summary: they issue new chips in exchange for loan agreements from people, a process that is sometimes called ‘fractional reserve banking’. See The Casino Chip Society for more detail). Credit Creation of Money gives banks a lot of power to direct the economy, because they get to decide which sectors to activate or deactivate by issuing or retracting credit). This is why there’s a tradition of monetary reform campaigns that call for the state to remove this power from the banking sector (see, for example, the American Monetary Institute in the US).
Such monetary reformers face an uphill battle, because in capitalist countries the state often acts to protect the banking sector (and officials may see the sector as foundational part of the Good Society, helping us achieve our life goals). So, in a country like the UK where the banking sector has huge political power, it’s politically impossible to call for legislation to prevent banks creating money (in fact, it’s far more likely that the state will work with the banks to promote ‘financial inclusion’, a euphemistic phrase referring to efforts to onboard people into the commercial banking sector, and to make them dependent on bank credit). Put simply, the idea that the state will work against the banking sector is out of sync with political reality.
So what is a monetary reform campaigner to do? Well… one possibility is to use a more oblique strategy. Rather than calling for legislation to remove money-creation power from the banks, just give the public a new option. Advocate for us to be given access to the traditionally limited-access central bank reserves that the banks have exclusive use of. This is turn will make us less dependent upon the Layer 2 digital money system run by the banking sector, reducing their political power.
So, some of the earliest CBDC proposals I came across were from monetary reformers who wanted to knee-cap private banks by getting the central bank to allow this."
(https://brettscott.substack.com/p/cbdc-analysis)
CBDC as a Democratic Project
Saule T. Omarova:
"As a practical matter, the United States and other democratic countries need to elevate CBDC issuance to the top of their current policy priorities. Our policymakers, industry leaders, and public interest advocates should start treating CBDC (digital USD, Euro, British pound, etc.) not as simply “one of many potential means of digital payments” – the common view that frames the CBDC debate in narrowly technocratic terms – but as the means of ensuring the sovereign public’s continuing control over its economic and political affairs, globally and domestically.
Globally, digitizing the US dollar and developing a viable network of interoperable CBDCs is vital to avoiding a potentially irreversible shift in the international balance of power in favor of China and its allies. Democratic governments cannot outsource this global “monetary countervailing” role to private stablecoin issuers, relying on their presumably superior innovation capacities or “natural” free-market preferences.
Wall Street and Big Tech conglomerates are driven by private profits and have strong incentives to transact in the digital yuan or the digital ruble, if doing so is sufficiently profitable. Private firms cannot supplant state actors in the international arena, and the advent of CBDC extends this logic to global payments.
Operationalizing this logic requires much closer cooperation and coordination among the central banks in key jurisdictions (United States, Canada, European Union, United Kingdom, Japan, Australia, etc.), which need to ensure seamless flow of sovereign digital currencies across jurisdictional borders and markets. In addition to ramping up the ongoing technical work on cross-border CBDC interoperability, it is important to actively consider more ambitious and potentially durable political solutions. These may include establishing regional digital currency unions or even the creation of a supranational CBDC – the digital-era version of Keynes’s “bancor” and the International Clearing Union.
It is also essential to establish new modes of coordination and cooperation among each country’s own central banks, financial regulators, and foreign policy and national security agencies. At the national level, the ongoing work on CBDC design and adoption needs to be an integral part of a broader government strategy, so that foreign policy objectives and concerns can continuously inform, contextualize, and shape the technical or regulatory decisions. Expanding CBDC designers’ mindset beyond the immediate financial market dynamics is an important step toward “getting it right.”
Domestically, CBDC issuance appears increasingly necessary in order to preserve and strengthen the role of public money in the digital era. The proliferation of private digital assets, including stablecoins, does not obviate the fundamental need for public money but threatens to push it down into the dark “basement” of the financial system, where its only function would be to backstop private digital money. If allowed to happen, the gradual disappearance of public money from economic transactions will severely weaken the vital connection between the state and the citizenry, effectively incapacitating the former and leaving the latter without guaranteed access to fully safe monetary instruments. Central bankers and policymakers need to recognize CBDC as the best available defense against this internal threat. They should broaden their view of how CBDC can be used, and what public benefits it can generate, outside of the narrow sphere of digital payments. Rather than vilifying state-issued digital currency, policymakers (in collaboration with scientists, legal experts, and public interest advocates) need to prioritize development of technological, legal, and institutional safeguards of CBDC users’ financial privacy and autonomy.35 Finally, policymakers need to expand the range of CBDC design options beyond what is currently on the table, or what would be least disruptive from the private financial industry’s perspective.
Instead of allowing the industry lead the process, policymakers need to formulate a coherent agenda for using CBDC as a tool of sustainable and equitable growth, democracy, and prosperity. CBDC has tremendous potential to redefine the central bank balance sheet as the ultimate public platform for the creation and allocation of money and credit to productive economic enterprise. Whether or not we realize this potential may determine the future of our democracy in the era of digitization.
(https://cdn.sanity.io/files/9xbysn2u/production/4d7f42a888168a1d66292f26cdc50b5e3ff8d698.pdf)
Source: Article/Chapter: Digital Finance and the Specter of Digital Authoritarianism. Saule T. Omarova. In: Decoding Digital Authoritarianism. Global Affairs Canada, 2023.
Discussion 2
How Political Imaginaries Influence the Interpretation of CBDC
Brett Scott:
"The first step in analysing CBDCs is to not think about CBDCs. Instead, we should acknowledge that all of us are bound to leap to certain conclusions about the topic, because all of us are haunted by background imaginaries that shape how we interpret things. ‘Imaginaries’ is a bit of a wanky academic term, but think of an ‘imaginary’ as being like a subconscious mental game-board upon which you play out scenarios in your head. It’s a game-board that has certain pre-set biases that will exert a pull on your thoughts, warping them in particular directions. You can have more than one imaginary competing to warp your thoughts, but here’s a selection, along with descriptions of what they are likely to make you think about CBDC.
CBDC in the libertarian imagination
If you’re a person who refers to yourself as a libertarian, your background imaginary will likely be set up as a battleground between good and evil. On the good side is a heroic, innovative and productive entrepreneur class defending against a bad, stagnant and parasitic government that tries to rob things. In this game-board, regulations are just an oppressive shackle suffocating innovation, and state enterprises are inefficient and corrupt drains upon society. Actually, you might not even believe in ‘society’ (echoing Margaret Thatcher’s belief that ‘there’s no such thing’ as society), and prefer to see the economy as but a collection of sovereign individuals without obligations to each other, who only interact to mutually pursue their self-interest. From this perspective, welfare systems are just one group of people using the state to leech off the hard work of others.
So how might a libertarian imaginary affect your perception of CBDCs? Well, it’ll probably bend your mind towards viewing CBDC as a new attack launched by the evil side of the battle. The state will use its control over this new digital money to watch you, censor you, and discipline you. In the socially conservative version of libertarianism, CBDCs loom as the monetary wing of a terrible new system of woke environmentalist authoritarian control. It’ll be enlisted to force you to buy green vegan products and to demote you if you fail to declare your pronouns. CBDCs may appear as just one more means to unnaturally distort the natural hierarchy of God and male patriarchs, who would otherwise by striving to preserve themselves and their family by competing hard in the market (which is imagined to produce spontaneous natural order when left to run without interference).
Conservative libertarianism is also very heavily invested in the Tarzan Suite, a mode of thinking about economies in which the individual is primary, and which tends to lead - through a number of twists and turns - to you imagining that money should be akin to a natural commodity. This may push you towards believing that Bitcoin is the great dollar-killer, which in turn may push you towards believing that CBDC is a desperate attempt by a frantic state to fight against the crypto revolution.
CBDC in the socialist imagination
If you call yourself a socialist, you may reject the idea that the individual is primary in the economy, because we’re all entangled together in a huge interdependent mass. Furthermore, you’ll probably believe that the most vulnerable people in society are not at liberty to just choose whatever path they want within this mesh. As Isaiah Berlin put it:
People are largely interdependent, and no person's activity is so completely private as never to obstruct the lives of others in any way. 'Freedom for the pike is death for the minnows'; the liberty of some must depend on the restraint of others.
On this game-board, poorer people often only have a choice between starving and selling their labour to rich people who have far greater power. So, within the socialist imaginary the state is seen as something to be harnessed to protect people against a parasitic capitalist class (which gets enormously wealthy by extracting surplus value from peoples’ labour). The state can act as a shield to protect the minnows from the pikes (and in this frame, deregulation efforts are a ‘licence to exploit’). In the far misty reaches of the imaginary there may be a dream of a future workers’ state where everyone collectively owns everything and exploitation is ended forever (this also exists in the libertarian vision, but as a dark nightmare of totalitarian communitarianism).
So how might this affect someone’s perception of CBDC? This is a tricky one, because people on the traditional political Left tend to have an aversion towards thinking about finance and money, seeing it as a profane realm of capitalists. But those who are savvy may see CBDCs as a Layer 1 opportunity to break the power of the Layer 2 private banking sector (which, alongside Big Tech, is in the midst of privatising the entire monetary system via its attacks on physical cash). They may see CBDC as initiating a new era of public digital money for the good all those crucial workers who lack status in capitalist markets, like nurses, teachers, and exploited minorities. Rather than CBDC being something to take over people’s lives, it’s something to be used in the fight against a banking sector that seeks to take over people’s lives.
Of course, ‘socialist’, like ‘conservative’, is a broad concept, and it’s an ecosystem of beliefs rather than a single species. While many left-leaning groups tend to see society as being like a large family that should be working together, only some believe there should be a paternalistic daddy figure on top directing the action. China stands out as having more of this ‘daddy-on-top’ vibe, and in the Western world there’s a small but vocal sub-section of the Left, pejoratively called ‘tankies’, who claim that critique of China is just a cloaked form of US imperialism. For this sub-set, and for anyone else who has bought into the daddy vision, privacy may appear as a kind of luxury sought after by bourgeois capitalists (who wish to stall the progress of the overall family). Digital surveillance may seem like a common sense element of a good society, to make sure everyone pays their taxes and contributes to the public good, but this obsequious attitude is rejected by left-wing anarchists, who are next on our list.
CBDC in the anarchist imagination
If you are someone - like me - who sits more on the left-anarchist (or libertarian socialist) spectrum, you’re probably not going to make a clear distinction between states and (large-scale) markets. The left anarchist game-board has the state acting in concert with large private sector players to form a kind of ruling coalition (even if the coalition members might make a big performance of sabre-rattling at each other). This means people with an anarchist impulse will tend to express cynicism towards both state and market. Nevertheless, they may see value in trying to engage with both in order to minimise the destructive tendencies of the ruling coalition by creating balances of power between the members (almost like trying to curb the expansion of a malignant dual cancer by getting one part to attack the other). Against this backdrop there’s a vague utopian dream of federated anarchy, a future in which small self-governed collectives flourish by setting up interconnected networks-of-networks (this vision has found new expression in the more progressive parts of the crypto world - for example, it sometimes pops up in the Ethereum and Cosmos ecosystems).
So how does this imaginary interact with CBDC? Hrm. Well, it probably leaves you with less nightmarish vision of CBDC than libertarianism, but a less romantic vision of it than the socialist imaginary might give. Given that state and market are just enmeshed elements of each other, you’re more likely to recognise the torturous angst that government officials will go through as they think about CBDC. State officials will be reluctant to launch one, because it risks disrupting the private banking corporations that form a core part of the ruling coalition. Insofar as a CBDC gets launched, it will have its fangs removed in order to maintain a strong role for the banking sector to continue to dominate the digital money system. In fact, CBDC may end up just being a ruse to improve the efficiency of the private interbank payments architecture, with the goal of accelerating and extending the reach of corporate capitalism into the furtherest reaches of your soul (more on this in Part 2).
Anarchisty people will already be concerned by the surveillance in the existing private sector digital payments system, but will now also have to be concerned about the potential for payments surveillance via CBDC. If you’re sitting somewhere between this imaginary and the previous one, you may be tantalised by the potential to mess with the big banks via state-issued digital money, but you’ll advocate for a privacy-centric implementation of it (perhaps along the lines of the E-Cash proposal by Rohan Grey and others).
CBDC in the centrist imagination
Technically speaking centrism is a middle position that rejects the extremes of the traditional Left and Right, but as a social imaginary it’s a pastel-coloured landscape stripped of fiery politics. This is a crude caricature, and centrism can seep into the liberal Left and neoliberal Right, but it’s kinda the comfort zone of the apolitical middle blob. It’s a game-board that assumes the world muddles on in the right direction, provided we all keep civil, and it also carves out much space for technocratic governance by experts (rather than by political ideologues). The world is a steady march towards economic efficiency, social good and progress, and if things exist it must be a sign that they serve a purpose for us all, not because they are there to extract power for one or other group.
Silicon Valley trades quite heavily on this imaginary: new technology emerges because ‘we’ have desire for it (indeed, its existence is seen as evidence of our desire), and all that remains is to have a managed process of transition to make sure nobody gets ‘left behind’ as everyone gets upgraded. Your individual identity can blossom in this consumerist landscape, as long as you don’t call for an ethno-nationalist police state, or for a true socialist revolution against the capitalists (albeit, you are allowed to call for fake revolutions on Instagram, and to wear left-wing aesthetics like a brand of clothes). As for states, they must be background plumbing to help business leaders meet the needs of consumers.
In the centrist imagination, CBDC has its political content watered down, and this is the standard mode by which it’s being presented in most official discussions. The underpaid public sector officials who are tasked with investigating it seem to be saying: ‘we are not authoritarian dictators or capitalist illuminati. We’re just hard-working policy experts working alongside private sector partners and civil society to serve society in its forward march into ever greater productivity and automation’. CBDC, in this frame, is just another step in our broader move towards ‘digital transformation’, which is seen to be inevitable because it’s part of our unstoppable, never-ending, and ever-so-exciting enlightenment journey towards ever more efficiency, convenience, interconnected complexity and SCALE."