CBDCs can only work hand in hand with digital IDs - and that's a slow motion dystopian nightmare (but only to those who remember the (g)olden days - to the next generation it will just be the new normal). It will be rolled out on the back of do-goodery, like Net Zero, so chances are it will happen because they mostly own the narrative.
Also, isn't Bitcoin just a special new kind of open un-managed Ponzi scheme, destined to discredit itself? With its insane "mining" operation of ultimately pointless number crunching. Mostly done for no purpose at all because they are not first to the solution, so don't actually mine anything. The pitch is: you are smart, buy Bitcoin, then get rich by doing nothing. The price goes up because of FOMO. At some point, in the distant future, when everybody is in, it will top out and the great cash out will begin. This already happens periodically - sell off / cash out, price drop, buy back, rinse and repeat. Apparently, it's not fit for purpose as a currency, not at large scale, so nobody really uses it for it purported raison d'être. I think everybody in Bitcoin knows this deep down, but somehow it keeps working - stay positive, talk positive, recruit more investors, price goes up, cool, told ya so, tell your mates! I'm not for a moment saying don't get into it, that would be foolish, look at the track record, it's great. But you can only get rich by cashing out at the right time and converting it into "real" assets. And it's all un-earned wealth, so please don't think you made a positive contribution to humanity and this is your well deserved reward. The fact that so many of us are OK with this is truly a sign of the times.
UK should show some foresight and start building its own bitcoin strategic reserve. Another lost opportunity. Seems all that we are good at these days.
While they are at it they should start funding gold mining in the UK so we can rebuild our gold reserves too.
Isn't it something like 60 thousand? I don't think many people actually know we have them. I hope we don't do what Germany did. If we actually created a strategic reserve that would both publicly acknowledge we have them and send a signal that we aren't selling.
I agree completely, so what am I missing? I think it is the simply thought because government can it will. Under the guise of the righteous, it will come: government will try and the people will acquiesce, look no further for confirmation than the actions of the people during the COVID lockdown. Enslavement or risk? Enslavement it would seem wins every time.
I have been puzzled by the “mining” bit of Bitcoin. That there is a built in limit on the total amount of Bitcoin that can be mined seems its real strength, but the absurdity of building power stations to mine more bitcoin has never made any sense (to me).
In some ways it’s better than gold. After all, what happens if we find a golden asteroid, or a nugget in the earth’s crust the size of a skyscraper? Or someone works out how to turn lead into gold?
Thank you. Isn’t this a bit like Keynes’ idea of digging holes, burying money in them, and encouraging people to dig it up again? And, how does it make any sense to consume so much energy in a world that is rapidly running out of it?
Thanks. An enjoyable post and I wholeheartedly agree with much of the content and conclusion that CBDCs — specifically the Retail rCBDCs that you’re talking about — will FAIL. Also agree fiat is dying and many governments will go bust within our (or our grandkids) lifetimes.
But my conclusion is quite differently nuanced to yours and based on darker thinking.
You talk of governments issuing rCBDCs, but just like fiat cash, they don’t. Central Banks do.
Remember rCBDCs were initially conceived by Central Bank’s. Back in 2013 they looked at Bitcoin and DLTs and published papers saying this is a great idea and we could reapply this to improve the outdated payments architecture. But by 2020 there was a complete U-turn by Central Banks, based on a couple of defensive concepts - the “singleness of money” (there is only one valid sovereign currency per country, whether GBP, USD, Euro, whatever) plus the notion of “systemic prudential risk” that any alternative “money” posed an existential threat to the existing system. It was suddenly catalysed through a knee-jerk reaction to Facebook’s Libra (a private coin designed to disrupt the payment world) but took the form of hatred and hostility by Central Banks against bitcoin in particular and crypto in general. Part of their response was CBDCs.
Central Banks wanted to try to stay relevant. They are not. Nor are their CBDCs. Retail CBDCs are, and will continue to be, IRRELEVANT, despite supposedly offering a new form of promissory money, equivalent to cash in digital form.
For me, this is is where the first part of the nuanced reality kicks in … CASH.
Fiat cash currency is also already effectively an irrelevant form of money next to bank-created digital money. Banks create — “out of thin air” in an internal accounting slight of hand — NEW money by adding liabilities to their balance sheet every time they make a loan. It’s there to see, in plain sight, but this process is hardly ever talked about by bankers or economists, even when discussing M2 or M4 money supply. It’s astonishing just how mis-understood money and banking are.
Bank created money is now 97% of all money in western economies and has been created by commercial (private) banks, while Central Banks (not governments) only created the 3% currency of notes and coins.
So here’s the bigger picture … Governments are puppets to their Central Banks (by way of example, consider the interest payments the UK government makes to the BoE from QE lending, all paid out from citizen’s tax receipts - tax money that might otherwise pay for a HS2 project, new hospitals, schools in a singe year - all hidden in OBR reporting alongside the forecast need for 20m immigrants into the UK by 2050 to try to make up GDP shortfalls).
And, in turn, Central Banks are puppets to the Commercial Banks (the BoE and Fed are designed to be independently run institutions, but they are truly unaccountable, hence the US fuss about Trump’s only power being to reappoint key roles in the Fed or the UK focus on the Guvnor of the BoE - things won’t change when you remember the current post-Keynesian muppet used to be Rachel from Account’s boss).
And this is where the real rCBDC story comes alive …
It’s actually all about power dynamics … and the Commercial Banks have the power. So here’s the actual reason why rCBDCs will never happen beyond the current pilot trials:
🔹Commercial Banks, not Central Banks, create the majority of money supply (97%). Central banks only create 3% of money — Cash. Notes and coins.
🔹rCBDCs would initially only replace a TINY proportion of this 3% cash - it’s these tiny volumes that make rCBDCs utterly IRRELEVANT!
🔹If Central Banks want to implement rCBDCs then it’s not a government IT project but a Central Bank project to issue CBDCs and handle commercial clearing bank ‘reserves’ (banks monies held by the Central Bank) and hand the vast bulk of the day to the operation of rCBDCs to commercial banks to run. Let me re-emphasise — NOT the government, but the banks running things!
🔹Meanwhile, if Central Banks want a bigger slice of the money pie, by trying to replace commercial bank created money — i.e. try to take back some of the 97% — with rCBDC then (i) it would mean reducing bank lending (how bank money is created) which could actually be a systemic risk with short term economic impact, or most likely (ii) banks will simply fight this because it would mean reducing their highly profitable bank lending. It’s almost Darwinistic for both banks and Central Banks to want to protect M2 money supply - not to stop the economy failing but to protect bankers’ bonuses!
🔹In other words, commercial Banks have all the power. Even if the Central Banks had the balls to try to reduce this then they would still need commercial banks to run rCBDCs, so immediately give the power back. You see this playing out in rCBDC pilot trials with talk of rCBDC “Holding Limits” that mean at most about £3K rCBDC limit per bank customer to protect bank deposits from being impacted. Similarly for current trials of $, € and ¥ holding limits around the world (Sand dollars just didn’t count!).
But here’s where it gets dark and dystopian … All the Orwellian fears that you raise about controlling what we individuals can and can’t spend our (digital bank) money on, based on what we do or don’t do as citizens, is already in place. It’s not a wishful, future government IT project but is already in place in commercial bank systems, notionally as ‘risk and compliance’ monitoring. It’s why today people have been “de-banked” (eg Nigel Farage for his politics or one of the directors of the Bank of England for trading crypto profits through his personal bank account).
Governments can’t be seen to be collecting info, monitoring and controlling citizens, but their regulators can issue policy and regulations to allow this, and most of all what already goes on is totally in the hands of the commercial banks! Ironically, 1984 was around the time banks really became fully computerised. Today, all kinds of institutions have access to our banking data - via payment rails or third party Open Banking apps with personal transaction data flowing through US and Chinese social media cloud servers. Orwell’s “big brother” is no longer a nefarious department of humans above Room 101, but an army of AI bots — or dumb computer algorithms — scouring our every move (including this Substack probably).
As for the idea of another soon to fail government IT project, this is where I do disagree with your presentation. For what it’s worth, CBDCs will be a success in terms of IT. Already wCBDCs (wholesale CBDCs handling reserves, inter-bank and cross border) are enhancing the old payments and money transfer systems (eg a system called RTGS). And the IT needed to run rCBDCs isn’t a stretch away from current banking apps and back office systems. But this misses the point — rCBDCs aren’t happening any time soon — and is a DANGEROUS thing to focus on because treating CBDCs as a government conspiracy is exactly the kind of distraction that allows the current reality to hide-in-plain-sight. You’re at risk of playing into the hands of the banks. Let’s avoid making the coming Orwellian nightmare worse by chasing our tails looking in the wrong places.
[and to continue on - Substack just limited what I could write] …
There are some other implications too linked to all this:
🔹The Central Banks also need commercial banks to manage the flows of stimulus money (QE) during each debt ceiling cycle — giving more influence to the banks. And we know more debt is coming (just to pay debt servicing, let alone forecast government spending).
🔹The one aspect of rCBDCs that would have been better than bank money is that this money would remain “yours” (as much as fiat money ever is). Particularly because whenever you put your hard-earnt money, or granny’s savings, into a bank account it is suddenly no longer yours. Even held in a commercial bank’s ledgers, rCBDCs would remain yours, protected and redeemable — just like it’s ‘promise to pay the bearer’ cash sibling. By contrast, almost no fiat digital money today belongs to the bank account ‘holder’ but when you deposit money it is held as a fairly meaningless contract with the banks that they can reneged at will (during bank runs and other failures) with little custodial integrity, and thus is why governments end up as the ‘guarantors’, insuring limited amounts of your bank deposits (US’ FDIC, EU’s DGS, UK’s FSCS). rCBDCs fix the latter limits, but not bank runs (unless banks have lent out or rehypothecated your rCBDCs, but that’s a whole other post).
Of course, your conclusion about rCBDCs is absolutely correct - they will not happen. But it’s only part of the picture:
🔹Wholesale wCBDCs are essentially monetary reserves and will end up as part of the intra-bank system with no real impact. History, however, will also forget these wCBDCs.
🔹Cheques (Checks) and fiat cash don’t change - they’re pretty stable forms of bearer money.
🔹Stablecoins and tokenised deposits offer a way to improve payments & settlements. Commercial Banks will (are already starting to) issue their own fiat-backed versions, interchangeable with each other & fiat currency at par. But peel back the wrappers and gloss and once again this — specifically the backed fiat behind these instruments — is just another way of minting even more commercial bank-created money and more bank profit!
But what about Bitcoin (and maybe ETH)? You mentioned bitcoin as an assumed safe alternative, but Bitcoin is at risk too.
🔹Crypto isn’t part of any of the above. But, ironically, ever increasing M2 money supply needs to flow somewhere (think about how various financial markets have ballooned in turn over recent decades) — so vast sums are heading next into bitcoin ETPs, ETH ETFs, etc. This will mean bitcoin is HODL’d in accounts held by the likes of MicroStrategy, Blackrock, corporate treasuries and even in US or other governments’ Strategic Bitcoin Reserves. The bottom line, though, is that if it’s HODL’d then it’s not being traded and the underlying blockchain and subsequent mining (administrative running of bitcoin) could wither away!
🔹 This will take years to play out, so there’s a possible SHORT-TERM traditional investment play here (but this is not advice as such) to invest either in Bitcoin (directly buy, not ETPs) or follow the firms that do invest in Bitcoin or other crypto ETPs or ETFs (eg MicroStrategy). But in the longer term bitcoin itself is at risk because the commercial money markets will take over indirectly (ETFs) and these secondary markets will debase, possibly taking the underlying bitcoin network down with them.
So, in conclusion, you know the answer to the key question … what single financial asset doesn’t debase over time? Back over to you and Charlie again!
I think you need to take into consideration that some central banks aren't looking at CBDC's on their own accord but have been instructed to by their Govt. Just because the central bank issues the currency doesn't mean they are the ones entirely controlling it, or anything else they do.
CBDCs can only work hand in hand with digital IDs - and that's a slow motion dystopian nightmare (but only to those who remember the (g)olden days - to the next generation it will just be the new normal). It will be rolled out on the back of do-goodery, like Net Zero, so chances are it will happen because they mostly own the narrative.
Also, isn't Bitcoin just a special new kind of open un-managed Ponzi scheme, destined to discredit itself? With its insane "mining" operation of ultimately pointless number crunching. Mostly done for no purpose at all because they are not first to the solution, so don't actually mine anything. The pitch is: you are smart, buy Bitcoin, then get rich by doing nothing. The price goes up because of FOMO. At some point, in the distant future, when everybody is in, it will top out and the great cash out will begin. This already happens periodically - sell off / cash out, price drop, buy back, rinse and repeat. Apparently, it's not fit for purpose as a currency, not at large scale, so nobody really uses it for it purported raison d'être. I think everybody in Bitcoin knows this deep down, but somehow it keeps working - stay positive, talk positive, recruit more investors, price goes up, cool, told ya so, tell your mates! I'm not for a moment saying don't get into it, that would be foolish, look at the track record, it's great. But you can only get rich by cashing out at the right time and converting it into "real" assets. And it's all un-earned wealth, so please don't think you made a positive contribution to humanity and this is your well deserved reward. The fact that so many of us are OK with this is truly a sign of the times.
I don’t see it like that. :)
UK should show some foresight and start building its own bitcoin strategic reserve. Another lost opportunity. Seems all that we are good at these days.
While they are at it they should start funding gold mining in the UK so we can rebuild our gold reserves too.
We have a lot of bitcoins. We need to 1 not sell them. 2 own the fact that we have them.
Isn't it something like 60 thousand? I don't think many people actually know we have them. I hope we don't do what Germany did. If we actually created a strategic reserve that would both publicly acknowledge we have them and send a signal that we aren't selling.
well said
I agree completely, so what am I missing? I think it is the simply thought because government can it will. Under the guise of the righteous, it will come: government will try and the people will acquiesce, look no further for confirmation than the actions of the people during the COVID lockdown. Enslavement or risk? Enslavement it would seem wins every time.
I have been puzzled by the “mining” bit of Bitcoin. That there is a built in limit on the total amount of Bitcoin that can be mined seems its real strength, but the absurdity of building power stations to mine more bitcoin has never made any sense (to me).
In some ways it’s better than gold. After all, what happens if we find a golden asteroid, or a nugget in the earth’s crust the size of a skyscraper? Or someone works out how to turn lead into gold?
this explains all https://www.youtube.com/watch?v=WWGV_20MdmI
Everybody watch this! Very enlightening.
Thank you. Isn’t this a bit like Keynes’ idea of digging holes, burying money in them, and encouraging people to dig it up again? And, how does it make any sense to consume so much energy in a world that is rapidly running out of it?
Thanks. An enjoyable post and I wholeheartedly agree with much of the content and conclusion that CBDCs — specifically the Retail rCBDCs that you’re talking about — will FAIL. Also agree fiat is dying and many governments will go bust within our (or our grandkids) lifetimes.
But my conclusion is quite differently nuanced to yours and based on darker thinking.
You talk of governments issuing rCBDCs, but just like fiat cash, they don’t. Central Banks do.
Remember rCBDCs were initially conceived by Central Bank’s. Back in 2013 they looked at Bitcoin and DLTs and published papers saying this is a great idea and we could reapply this to improve the outdated payments architecture. But by 2020 there was a complete U-turn by Central Banks, based on a couple of defensive concepts - the “singleness of money” (there is only one valid sovereign currency per country, whether GBP, USD, Euro, whatever) plus the notion of “systemic prudential risk” that any alternative “money” posed an existential threat to the existing system. It was suddenly catalysed through a knee-jerk reaction to Facebook’s Libra (a private coin designed to disrupt the payment world) but took the form of hatred and hostility by Central Banks against bitcoin in particular and crypto in general. Part of their response was CBDCs.
Central Banks wanted to try to stay relevant. They are not. Nor are their CBDCs. Retail CBDCs are, and will continue to be, IRRELEVANT, despite supposedly offering a new form of promissory money, equivalent to cash in digital form.
For me, this is is where the first part of the nuanced reality kicks in … CASH.
Fiat cash currency is also already effectively an irrelevant form of money next to bank-created digital money. Banks create — “out of thin air” in an internal accounting slight of hand — NEW money by adding liabilities to their balance sheet every time they make a loan. It’s there to see, in plain sight, but this process is hardly ever talked about by bankers or economists, even when discussing M2 or M4 money supply. It’s astonishing just how mis-understood money and banking are.
Bank created money is now 97% of all money in western economies and has been created by commercial (private) banks, while Central Banks (not governments) only created the 3% currency of notes and coins.
So here’s the bigger picture … Governments are puppets to their Central Banks (by way of example, consider the interest payments the UK government makes to the BoE from QE lending, all paid out from citizen’s tax receipts - tax money that might otherwise pay for a HS2 project, new hospitals, schools in a singe year - all hidden in OBR reporting alongside the forecast need for 20m immigrants into the UK by 2050 to try to make up GDP shortfalls).
And, in turn, Central Banks are puppets to the Commercial Banks (the BoE and Fed are designed to be independently run institutions, but they are truly unaccountable, hence the US fuss about Trump’s only power being to reappoint key roles in the Fed or the UK focus on the Guvnor of the BoE - things won’t change when you remember the current post-Keynesian muppet used to be Rachel from Account’s boss).
And this is where the real rCBDC story comes alive …
It’s actually all about power dynamics … and the Commercial Banks have the power. So here’s the actual reason why rCBDCs will never happen beyond the current pilot trials:
🔹Commercial Banks, not Central Banks, create the majority of money supply (97%). Central banks only create 3% of money — Cash. Notes and coins.
🔹rCBDCs would initially only replace a TINY proportion of this 3% cash - it’s these tiny volumes that make rCBDCs utterly IRRELEVANT!
🔹If Central Banks want to implement rCBDCs then it’s not a government IT project but a Central Bank project to issue CBDCs and handle commercial clearing bank ‘reserves’ (banks monies held by the Central Bank) and hand the vast bulk of the day to the operation of rCBDCs to commercial banks to run. Let me re-emphasise — NOT the government, but the banks running things!
🔹Meanwhile, if Central Banks want a bigger slice of the money pie, by trying to replace commercial bank created money — i.e. try to take back some of the 97% — with rCBDC then (i) it would mean reducing bank lending (how bank money is created) which could actually be a systemic risk with short term economic impact, or most likely (ii) banks will simply fight this because it would mean reducing their highly profitable bank lending. It’s almost Darwinistic for both banks and Central Banks to want to protect M2 money supply - not to stop the economy failing but to protect bankers’ bonuses!
🔹In other words, commercial Banks have all the power. Even if the Central Banks had the balls to try to reduce this then they would still need commercial banks to run rCBDCs, so immediately give the power back. You see this playing out in rCBDC pilot trials with talk of rCBDC “Holding Limits” that mean at most about £3K rCBDC limit per bank customer to protect bank deposits from being impacted. Similarly for current trials of $, € and ¥ holding limits around the world (Sand dollars just didn’t count!).
But here’s where it gets dark and dystopian … All the Orwellian fears that you raise about controlling what we individuals can and can’t spend our (digital bank) money on, based on what we do or don’t do as citizens, is already in place. It’s not a wishful, future government IT project but is already in place in commercial bank systems, notionally as ‘risk and compliance’ monitoring. It’s why today people have been “de-banked” (eg Nigel Farage for his politics or one of the directors of the Bank of England for trading crypto profits through his personal bank account).
Governments can’t be seen to be collecting info, monitoring and controlling citizens, but their regulators can issue policy and regulations to allow this, and most of all what already goes on is totally in the hands of the commercial banks! Ironically, 1984 was around the time banks really became fully computerised. Today, all kinds of institutions have access to our banking data - via payment rails or third party Open Banking apps with personal transaction data flowing through US and Chinese social media cloud servers. Orwell’s “big brother” is no longer a nefarious department of humans above Room 101, but an army of AI bots — or dumb computer algorithms — scouring our every move (including this Substack probably).
As for the idea of another soon to fail government IT project, this is where I do disagree with your presentation. For what it’s worth, CBDCs will be a success in terms of IT. Already wCBDCs (wholesale CBDCs handling reserves, inter-bank and cross border) are enhancing the old payments and money transfer systems (eg a system called RTGS). And the IT needed to run rCBDCs isn’t a stretch away from current banking apps and back office systems. But this misses the point — rCBDCs aren’t happening any time soon — and is a DANGEROUS thing to focus on because treating CBDCs as a government conspiracy is exactly the kind of distraction that allows the current reality to hide-in-plain-sight. You’re at risk of playing into the hands of the banks. Let’s avoid making the coming Orwellian nightmare worse by chasing our tails looking in the wrong places.
[and to continue on - Substack just limited what I could write] …
There are some other implications too linked to all this:
🔹The Central Banks also need commercial banks to manage the flows of stimulus money (QE) during each debt ceiling cycle — giving more influence to the banks. And we know more debt is coming (just to pay debt servicing, let alone forecast government spending).
🔹The one aspect of rCBDCs that would have been better than bank money is that this money would remain “yours” (as much as fiat money ever is). Particularly because whenever you put your hard-earnt money, or granny’s savings, into a bank account it is suddenly no longer yours. Even held in a commercial bank’s ledgers, rCBDCs would remain yours, protected and redeemable — just like it’s ‘promise to pay the bearer’ cash sibling. By contrast, almost no fiat digital money today belongs to the bank account ‘holder’ but when you deposit money it is held as a fairly meaningless contract with the banks that they can reneged at will (during bank runs and other failures) with little custodial integrity, and thus is why governments end up as the ‘guarantors’, insuring limited amounts of your bank deposits (US’ FDIC, EU’s DGS, UK’s FSCS). rCBDCs fix the latter limits, but not bank runs (unless banks have lent out or rehypothecated your rCBDCs, but that’s a whole other post).
Of course, your conclusion about rCBDCs is absolutely correct - they will not happen. But it’s only part of the picture:
🔹Wholesale wCBDCs are essentially monetary reserves and will end up as part of the intra-bank system with no real impact. History, however, will also forget these wCBDCs.
🔹Cheques (Checks) and fiat cash don’t change - they’re pretty stable forms of bearer money.
🔹Stablecoins and tokenised deposits offer a way to improve payments & settlements. Commercial Banks will (are already starting to) issue their own fiat-backed versions, interchangeable with each other & fiat currency at par. But peel back the wrappers and gloss and once again this — specifically the backed fiat behind these instruments — is just another way of minting even more commercial bank-created money and more bank profit!
But what about Bitcoin (and maybe ETH)? You mentioned bitcoin as an assumed safe alternative, but Bitcoin is at risk too.
🔹Crypto isn’t part of any of the above. But, ironically, ever increasing M2 money supply needs to flow somewhere (think about how various financial markets have ballooned in turn over recent decades) — so vast sums are heading next into bitcoin ETPs, ETH ETFs, etc. This will mean bitcoin is HODL’d in accounts held by the likes of MicroStrategy, Blackrock, corporate treasuries and even in US or other governments’ Strategic Bitcoin Reserves. The bottom line, though, is that if it’s HODL’d then it’s not being traded and the underlying blockchain and subsequent mining (administrative running of bitcoin) could wither away!
🔹 This will take years to play out, so there’s a possible SHORT-TERM traditional investment play here (but this is not advice as such) to invest either in Bitcoin (directly buy, not ETPs) or follow the firms that do invest in Bitcoin or other crypto ETPs or ETFs (eg MicroStrategy). But in the longer term bitcoin itself is at risk because the commercial money markets will take over indirectly (ETFs) and these secondary markets will debase, possibly taking the underlying bitcoin network down with them.
So, in conclusion, you know the answer to the key question … what single financial asset doesn’t debase over time? Back over to you and Charlie again!
Cheers
Richard
I think you need to take into consideration that some central banks aren't looking at CBDC's on their own accord but have been instructed to by their Govt. Just because the central bank issues the currency doesn't mean they are the ones entirely controlling it, or anything else they do.