Bank of England to explore a potential Central Bank Digital Currency
bankofengland.co.uk
bankofengland.co.uk
I can already have an entirely digital bank account from at least three "challenger" banks. There are also now at least two business accounts that also entirely virtual. "Faster Payments" (customer bank transfers) are delivered in seconds.
I can see a need for speeding up BACS, and reducing the price of CHAPS, but apart from that, there isn't much wrong with the pound.
changing to having an open ledger(bitcoin style) isn't entirely great as a normal citizen. I don't really want my entire financial history to be picked over by advertisers, insurance companies, future employers, and spam/scam bots.
A government isn't ever going to allow a normal citizen to have a anonymous payments system so I don't see them allowing a purely private and anonymous currency (ala-monero)
The need isn't for the consumer. It's advantageous for the central bankers. With it they can more easily control demurrage/inflation/deflation/confiscation (like the Chinese government plans to do with the e-RMB).
IE taxes based on savings instead of income.
What I don't understand is the consequences of that on private banks.
Even if every bank account in the country started charging an account fee to cover negative interest rates, people would continue to use banks because they are just so damn convenient.
It's really only the wealthy who would be faced with this being any significant amount of money, and those people comprise a tiny minority of bank accounts.
Maybe, maybe not - it's possible for interest rates to be high and inflation to be even higher (stagflation).
This is a pretty fundamental misunderstanding of modern economics.
It is a tax on savings whether currency is "supposed" to be saved or not. All retail banks offer savings accounts specifically for this purpose.
I think tax is the wrong word because a tax implies a kind of tithe on top of desirable behavior. A fine implies that you are being penalized for undesirable behavior. I think the latter is a more apt description.
Your mattress full of hundos is detrimental to the economy and you are being fined for maintaining it.
Savings accounts are not an example of unproductive capital because they collateralize loans. That's why they're not subject to the inflationary haircut. They're not particularly productive hence the low return, which may be below inflation. However, that's an ROI below benchmark, not inflation. i.e. savings accounts are just a bad investment. Bad investments will exist in any market conditions.
Personally I maintain a small cash buffer in a savings account and I pay the (small) delta between inflation and interest rate as a fee for liquidity.
When central banks issue cash now are they literally sending billions of dollars to the mint, trucking it off to a bank, and then the bank records it on a digital ledger? Seems wasteful.
It is, but it's restricted. M0 is central bank money [1]. Currently, only financial institutions have it. If the public could open accounts at the BoE, they too could own M0.
CBDCs are a way to give the public M0 without putting the central bank into the retail banking business. That gives central banks powerful new levers. For example, cash limits how negative rates can go. If cash were to become scarce and most money were held as M0, the central bank could enforce negative interest rates by clawing back M0.
Negative rates are feasible today. But were they to go sharply negative, they'd hit bank capital. Having the public directly hold M0 removes that side effect.
No, it doesn’t. Cash with depreciation or expiration (both preannounced and ad hoc) has been used before. Politics, not technology, limits the use of that tool, and CBDC doesn’t meaningfully change the politics.
Yes, if you changed the cash we're talking about, pounds sterling, it would be different.
> CBDC doesn’t meaningfully change the politics
Remember a few years ago, when IT would talk about getting long-needed projects greenly because they slapped "blockchain" on the proposal?Expiring cash is toxic. CBDC is not. Branding matters.
Bank deposits are insured up to £85k, which means they are as solid and as good as cash.
It’s well known that negative rates only bind on commercial bank deposits - if at all.
Negative rates are just a tax on banks - which they recover by charging more for loans, and paying less for deposits like any other costs.
Also, wouldn't this widespread use require in-kind withdrawal of cash from circulation to have any real effect?
Btw I don't think OP argued citizens wouldn't need an account.
>> For example, cash limits how negative rates can go. If cash were to become scarce and most money were held as M0, the central bank could enforce negative interest rates by clawing back M0.
This would only really be effective if CBDC became prevalent enough to actually make a dent in money supply. What proportion of money would have to be CBDC for this to actually have an impact, and would we get there by just pure issuance of CBDC or by taking cash out of circulation and replacing it with CBDC?
> Btw I don't think OP argued citizens wouldn't need an account.
>> CBDCs are a way to give the public M0 without putting the central bank into the retail banking business.
I don't know how you would avoid retail banking unless you were to issue it via a means other than an account.
There's a lot more that goes into retail banking than just having an account. Of course citizens would need an account, how else will they be tracked :) I think the OP meant that the central bank could give customers an account for the sole purpose of holding their digital "crypto" coins and sending/receiving money with it....without having to do provide all the other services that go with retail banking like loans, credit cards etc.
Going fully cashless will make negative rates impossible to avoid. UBI can be more specifically targeted as well.
Generally speaking, the money supply exceeds the total amount of cash in most countries.
If they are in control of digital currency then they have a ledger of transactions, maybe? and if you have a 1:1 record of every single ledger then it's a bit harder to obfuscate?
Banks & businesses keep ledgers like these, but you have to 1. get your hands on it and 2. in case of multiple sets of books, you need to find the correct one. And then you have to connect all the dots.
Chinese capital and lending controls are very strict but this hasn't stopped Chinese and others to try and move money out of China. China has had repeated issues with things happening beyond regulators' reach until they become too big to hide and then have to be unwound, like excessive use of shadow banks for lending.
Settle everything instantly, no charges, no withdrawal fees converting between cash and digital. The cost of running the system are probably minimal compared to what the entire consumer-banking sector collects.
Depending on where you are, this cost might be hidden from you. (banking in the USA for example is expensive compared to the UK)
However as you point out, those companies that provide PoS terminals take either a monthly fee, or a percentage cut.
Neither are roads, railways, wastewater treatment, communication lines or electricity. Money is infrastructure, and it makes sense for government to control and subsidize these to secure free and equal access, as well as ensure that developments of them occur in ways that benefit all members of society.
Politicians can’t print a dollar without abusing it to promote religion (“In God We Trust”), funding war, or handing it out to get reelected.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
It worked quite well, I'd say.
If you are going to mention the open banking API initiative, then what are the requirements to get access to that? You can't as an individual.
Also, this was the easy case, inter-UK. Now tell me how to transfer using Python and without applying to all kinds of regulators for API access a pound from a UK account to a US/EU/Japan account.
It’s been a few years so I don’t remember the details, but I’ve written Python that was about that simple using Teller[0] without any problems. Didn’t need a digital currency or direct access to the Open Banking API, just used normal Pounds Sterling and normal bank accounts.
It gives Teller full access to your account from what I read, can you limit it for example to just send money, without them going through your statements?
And it's still only intra-UK.
Wise (Formerly TransferWise) does forex.
I fully agree with you though, the Open Banking outcome in reality almost looks like a joke. I only found the above as I was searching for a while to find a way to do this that didn't involve building my own screen scrapers to implement.
There are banking offerings in the UK with official APIs however you are looking at £200/month+ in costs.
And what about fees? BTC, ETH and many other coins are essentially unusable for smaller transactions. Sending .02 ETH (about $45) from my MEW wallet costs .00292 ETH (about $6.75).
What happens if I give a street artist 5 pounds to draw my picture and then he flatly refuses?
What happens if someone mugs me on the street and steals 100 pounds from me?
Should we not have cash at all because of these two problems, and others?
as you've alluded to, its not open to consumers, only financial institutions, with good reason. It gives you lots of access to do all sorts of things.
> how I can transfer one pound from me to you using a 20 line Python script?
Now this isn't a usecase I had thought about. I mean there are APIs that I can use to interface to a specific bank that will allow me to do this. But they are hidden behind layers of bureaucracy.
I think the issue for _consumer_ banking is making sure there is enough screening to make sure its not as easy for scammers and tricksters to get money from you.
How so? There's no reason a bank account shouldn't be programmable. If the worry is fraud and account hacks, that already happens when the computer is compromised or people get scammed.
Agreed.
But until we have a better system of plainly showing access levels to one's account its a scammer paradise to allow access via said API.
You and I are educated in the world of API access, so will think twice before clicking "agree" to allowing emoji corp access to my bank account to "verify your identity", but a significant number of people would blindly click allow. Until we have either educated the public, or made an access GUI that stops 99.9% of that kind of use case, its just not worth the hassle.
Nobody says such API would be connected to a person's life holdings. It could be low amounts that are safe to lose in case of a hack.
Of course, you need to educate people to not put all their life savings into those accounts. But the same applies to multiple other services.
Look at the current £10 note. To even start on getting a "close enough" material (the feel of the polymer, the clear windows), you're looking at acquiring specialized print stock they don't exactly stock at the Office Supply Warehouse down the street. Now, how exactly are you going to transfer a design to it? Conventional CMYK inkjet and laser-- if you can get it to stick, are going to be a dotty, indistinct mess. Heat-transfer might bake the colour in, but would probably wreck the material and be blurry and smudgy. Once you've figured that out, try to figure out how you can precision-cut and apply holographic foil and optically-variable panels. Now scale it up to the point where it's economically viable.
If you've used a printer before, you know it's not going to be capable of cranking out a convincing banknote.
For consumer acceptance, it's important that people can directly trust the system. I'm concerned that "here's some papers that if I go to my local university, there might be a few experts in the math department who can parse them and tell me it's trustworthy" won't have quite the same impact as "look at the fine lines making up the portrait of Jane Austin, you know that's not coming out of your HP DeskJet."
So often not though. Money without oversight will instantly attract the most nefarious users that governments don't like, so it's unlikely anything a government would propose is going to very easily allow things to happen without some kind of regulatory control.
It's hard to fathom exactly what the point would be, because even the benefit of reducing VISA style transaction taxes from the current 2.5% to about 0.1% (which is where it should be) would incur the wrath of the institutions that make money from that and sponsor centre-right politicians in the UK.
It's too early to tell, it could just be a political football for now, something to talk about, get attention, distract us etc..
In fact, things are heading the other way, with "micro"-transactions in mainstream games sometimes exceeding the price of the game itself.
In the music business u don't make money on each song, you only make oney from hit songs.
That song streamed 10 million times can earn you $50k. And it could be more if spotify wasn't taking a bite out of it.
[0]: https://www.businessinsider.com/how-much-does-spotify-pay-pe...
Open Banking is not available to individuals by design. Can you imagine the fraud levels if it was?
To achieve their goal, they program the money with "must be spent on consumer goods and/or rent in the next 6 months." Then they put a "smart contract" on the money and say "can only be spent if you are drug free and looked for a job in the last 6 months."
It's scary and I am against it, but above is the upside, from a certain perspective.
The bailwick of Jersey sent citizens a prepaid card with £100 expiring in 6 monhts which was also disabled for ATM withdrawls during 2020. Again moderate results.
Money is a unit of account, if you mess with it people adjust quickly, there is no free lunch.
It's not the same as giving Wellbutrin+Ritalin to somebody who is depressed.
The more you use extreme measures to force people to do what they don't want, the more they'd refuse to do so.
When people are scared and paralyzed by fear, messing with the unit of account won't calm their worries, if anything given how out of the ordinary it is, it could be argued that it makes things worse.
Money is external, people pick the scheme apart rather quickly and you end up worse than before because now you look desperate to force them to do what you want
Whether this is good or bad on the long run is debate-able, but it would shake things up globally.
Even if they can't see the "crypto-dollar" for less "real dollars", they will just go through some medium of exchange. I.e. buy toilet paper for crypto dollars, and sell it at a discount.
Great point. I didn't consider it offhand.
I tried to get one for my banknote collection, but it got lost in the post. :/
/TinFoilHat
A digital currency would make possible to settle a trade stock in minutes or even seconds.
A digital currency would remove a lot of transactions costs associated with buying/selling stocks.
There are quite a few steps before actual stocks can change hands. For instance the seller could have sold without actually owning the stocks, it might be he even can't deliver them, in which case the clearing will have to take care of that, etc. All these steps could have been automated long ago if the will was there, the reason they haven't is not because of the currency used but because of traditional common practice and legacy reasons.
One real reason why digital currencies are not widely deployed is crime. Already there is a growing problem of ransomware demanding Bitcoin payments; a "true" digital currency that was as convenient as Bitcoin and allowed offline (peer-to-peer) payments (which Bitcoin does not and cannot support) would enable "perfect crimes." This was a concern raised in the 90s when digital cash was being proposed:
https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.46...
This was one of the concerns that prevented banks from adopting e-cash (as the term is understood by cryptographers), though I have been told by people who worked on this that law enforcement agencies were satisfied that they could still "follow the money" since the anonymity property was narrowly defined (banks could not link deposits to withdrawals, but banks would still know who had made a particular deposit, merchants would still be able to identify customers, etc.).
What you didn't mention is that it's also already pretty digital at point of sale as well; Contactless payment, i.e. "card taps" are very common.
Actually, the UK got pretty close to it in the 1990s
Covid was also used in government PR to try and sell the idea of a cashless society.
What they mean by "digital currency" is a for instance a purely digital bank note than you can hold and transfer to someone else (like for instance a crypto token). Clearly that's not how things work now.
Edit: See my further comment below as it looks like people don't quite understand what "digital currency" is.
when you do a bank transfer, do you think they physical cash?
When the BoE does quantitative easing, they don't actually print money[1], they just "transfer" money to banks who then do "things" with it. Its literally just numbers in a DB.
[1] handling physical cash is expensive, slow and difficult. Not only is the price of movement relatively static regardless of the value, you have to keep on paying to store the stuff. The Federal reserve do things differently I think, because are not quite as all in one as the BoE.
Not, it's not.
It seems you and others are confused here and do not understand what is meant by "digital currency".
Digital currencies, like what is discussed and e.g. the "digital yuan" in China, it to create real digital bank notes / coins. Not expert by I think similar to a crypto token.
It means I can hold a digital bank note and pay you by transferring it to you.
This is very different to the current system in which I instruct my bank to do something and to balance with the recipient's bank.
Depending how this is implemented it can be anonymous like physical bank notes, or it can be tracked and plenty of other things also become possible. It also does not require me to interact with my bank.
The only real benefit to this system is that it would probably be run by a government agency and as such, would theoretically make it available to everyone. This would reduce the cost of being unbanked in the US and probably improve lives. Honestly, though, you could just make basic banking available for everyone so they can get paid, pay bills online, and shop easily - it'd likely prove to be more cost effective.
The point being is that what is referred to as "digital currency" is not what we have now (otherwise the BoE and others would not be studying feasibility and costs/benefits). In that sense currency is not digital at the moment. Bank ledgers and transfer instructions are.
You started of staying "currency is not digital", a broad statement about which I don't think there's any confusion, it's just flat-out incorrect. If it's not digital then what is it then, analogue?
Now you're talking about a particular form of digital token, which OK, maybe currency isn't that, and the usefulness of that isn't given. Saying "currency isn't digital because it's not this token" is like saying ".png files aren't digital because they're not .mp3s". It's still numbers in computers. You know, digital.
Currency is currently not digital in the sense meant here. Otherwise the BoE and other central banks would not discuss the possibility of issuing digital currency. It's rather the banks' ledgers and transfer instructions that are digital.
In my previous comment I have only tried to explain what CBDC is. Perhaps I did not do a good job if so please feel free to provide a better explanation that would benefit everyone.
> "currency isn't digital because it's not this token
I have not written that, so I think you do not understand the topic. Here for reference to start with:
The alternative is of course that it's all meaningless hype. Just because the government does something doesn't necessarily prove it makes sense.
your clarifications were helpful
It seems that you're now saying that "BoE Currency is not digital currency." with a specific meaning of "digital currency" separate from the definition of "digital" or "currency".
This is why digital replacements for cash hasn't (and likely won't) succeed.
To often people speak of their government as completely abstract separated entity they can only submit to. But actually, they elect them and the government even follow them in their craziest follies, like, say, leaving the EU in the UK.
I don't feel represented by any of the parties that have a chance to get into power.
Democracy is literally the majority ruling over the minority - the problem being that even that majority can pick between entities they agree with on some issues and not others.
Decentralisation of power is the only way to get control back to people and out of an elected oligarchy.
it is a compromise. I don't want to live in anarchy (sorry, a libertarian world) because like extreme communism it has inherent flaws. Thus I submit to being ruled by the UK government, and actively vote in elections. However as its a compromise, no present party with a chance of winning power reflects my views, thus compromise.
However to your main point. Anonymous easy payments are a vector for corruption, crime and general bad stuff. Sure there are good usecases for it, but mostly it'll be used to avoid tax.
I wonder if you would reconsider anarchy if there was a private system of entities providing government-like services and compete with each other.
It's a win-win for everyone.
Also the energy required to secure the ledger will be dramatically reduced. Proof of work can be replaced by physical security, which is more energy efficient.
Anyone wanting to rewrite the ledger would need more power than the government has in protecting it.
I'm not sure you understand how banking works. The BoE already has a ledger, its just private[1] for a number of reason (the banks accounts are published, but not in real time, and not by individual account). All banks have ledgers, and sometimes they even marry up.
[1]well kind of.
Transactions in ledger-based accounting require a source and target account. In double-entry, all transaction legs have to sum to zero. "$10 on Paul; -$10 on Alice."
Your "current balance" may be cached, but it's never used. Most financial systems (which I suspect extends to banks, but I could be wrong) will enforce recalculation of at least the tip of the account's ledger whenever a transaction comes out of it. You don't just add/substract from a cached number.
Currency is based on trust. Trust that the ledger is correct, auditable and matches up.
but to address your question, its possible to unilaterally reverse a payment, but as you'll then have to tell the clearing house to reverse the transaction, you'll need to get authorization from thirdparty, which is tricky. Moving money around inside a bank though is probably much easier.
However you're far better off just running a limited company and offering loans, that's a far easier way commit fraud.
Do you simply trust that I won't, and that your bank trusts me not to do so?
I suppose the question is, what's stopping me? Trust or security?
but more deeply its both trust security, and legal liability.
First you need to gain access to the system in the first place. Then you need to have unfettered access and be undetected. Considering this has been the number one ledger attack since the beginning of time (which is why tally sticks were a thing, and double entry book keeping) There are lots of systems in place to stop, detect or alert. Not only that you have the statement generating system which sends out physical copies of the account monthly.
Second we would need clearing houses to not notice that there is a mismatch in funds.
third when you try to extract that cash, we'd need the money laundering alarms to not go off. Which, if you've tried to buy a house in the UK, you know is not at all trivial.
You have to realise that the banking system is reliant on a bunch of very bored, highly motivated, fresh out of uni graduates to tally, move and generally be the grease that moves capital about. They will have tried all sorts of tricks to cheat, scam & salami slice money. There is a huge amount of effort going on to stop, detect and deflect fraud. Mainly because the banks are liable for it.
So for standard bank accounts, the chance of someone getting access to a server and changing the values of my account and not being detected are pretty limited. Not impossible, but small.
And thats the key. If the bank cocks up, the law is very much on my side as a consumer. the bank will be compelled to reverse the fraud. If they don't they get fined and or loose their license (although in practice, I don't think thats likely.)
With zero trust, if someone cocks up a digital contract and someone extracts the entire escrow value, game over. no recourse, other than to try and take the perp to court.
In what way is more government surveillance and control over accounts a win for the average citizen? The rich will always find a way like they do with taxes, and it's the average person that suffers every time.
Switching into their own digital currency (or watever technology) government picks doesn't automatically make them and their fiscal policy more trustworthy among businesses, investors or citizens.
They can't hide abusive tax policies, irresponsible spending and desire to control their citizens wealth and financial lives behind their "digital" version of fiat.
That being said, a pound is so worthless today that the difference between 1/60th of a pound and 1/100th is meaningless; it would just be a rounding error in most calculations.
I suspect that all fractions of a £ will go the way of the shilling in the next 30 years.
I also read that Babylonians or whoever it was, used a system with base 60, even better divisible.
I wonder how it would affect our daily lives, if we still had such better divisible numbers in use with money today. For example 60 cent make a euro or dollar or whatever. Of course then it might not be called "cent" any longer.
In essence, perhaps not all ideas of such an old system were bad in principle.
For example, instead of having screen details in sqcm (and aspect ratios), we have inches (and maaaaybe aspect rations mentioned somewhere). This is being pushed <<everywhere>> around the world because of freaking device screens.
It's like a comment about I saw about nature: if we see a rodent eating a bug, that's a bit gross but it's ok (the rodent being a mammal and therefore closer to us, so "superior"), but if we saw a bug eating a rodent, we're appalled. Right now the US imperial measurement system seems like that bug trying to eat the rodent (metric/decimal system).
The nature (good/bad) of the thing being pushed is. The imperial system is objectively inferior since the metric system has been created.
Countries other than the UK had done that step (for currency) centuries before Britain too.
Here is some background: "How Britain converted to decimal currency" -- https://www.bbc.com/news/business-12346083
Also,
> the benefit wasn't for humans (who prefer working in 12's)
I'm not sure what people you know, I don't know anyone who would prefer base 12. That seems like a very bold claim to me - I think I would like to see some evidence for it.
If you divide the day in 10, let's call it decile, you would say see you in a decile instead of 2.43 hours.
As a side effect, 2.43h is actually 2h and less than 30 minutes and not 2h and 43 minutes (unintuitive), while 0.41 decile would probably be 41 centile, so conversion would be easier.
It is clear that illiterate people could work in "old money" fine. I suspect this is like the darts players who can do the mental arithmetic involved in a darts match fine, but would consider themselves "bad at maths". It's a learning cliff, but like any learning cliff, it no longer matters once you've climbed it.
Would probably be called a sextant, which would raise a few eyebrows in British politics if history is to go by.
You can trade 'pork bellies futures' quickly, and using nothing but a computer. But no one claims pork bellies are digital. When people trade, they're effectively trading IOUs, and not the actual bellies.
A Central Bank Digital Currency would allow individuals to hold and transfer 'real' pounds (M0). Currently, only banks and selected other financial institutions can open accounts at the Bank of England.
If you think you (an individual) can currently hold digital pounds, just because you have a bank account, consider this question. If you have 200k GBP in your bank account, and the bank goes bust, will you still be able to withdraw 200k GBP?
It is for the Bank of England to take the loss, not the depositors, since the Bank of England is regulating the banks.
They are - because the deposits are insured 100% up to £85,000 by the deposit protection scheme.
You can show mathematically that an insured system and a in-specie system are exactly equivalent.
If I have more that £85,000 then I put it in National Savings for absolute security.
That covers over 99% of "digital cash" situations in the UK.
Neither of those things have anything to do with the central bank, because central bank money in the UK is also a derivative. The operational assets of the Bank of England are a claim on the National Loans Fund with recourse to the Consolidated Fund and ultimately parliamentary authority. Which is where Sterling truly originates.
The points of others thread stays: what is the point of CBDC for individuals if the supply is not limited and not stored at Central banks...
Anything else drops down a money laundering black hole.
No. They are protected by the FSCS [1].
[1] https://en.wikipedia.org/wiki/Financial_Services_Compensatio...
The UK equivalent is capped at 170k GBP per account-holder: https://www.moneysavingexpert.com/savings/safe-savings/
The US based subsidiary could potentially be FDIC insured, but wouldn't cover deposits denominated in the originating foreign bank's deposit, which is logical IMO.
The FDIC has a page about this but it's pretty useless.
The chapter on Technology Design states "Although CBDC is often associated with Distributed Ledger Technology (DLT — see Box 5), we do not presume CBDC must be built using DLT. Most existing payment systems are run on centralised technology stacks, and there is no reason CBDC could not also be built this way. However, DLT includes a number of potentially highly useful innovations, which can potentially be adopted independently of each other, allowing us to use the specific features of DLT which are most relevant and appropriate, without using DLT in its entirety."
The paper also discusses the risk-free nature of the currency (compared to deposits held in a commercial bank where consumers in principle face credit risk if the bank defaults), resilience, and innovation. And it notes the interesting related questions of whether the CBDC would be interest-bearing, and to what extent consumers switching from commercial bank deposits to the CBDC would impact the commercial banking model (using deposits to fund lending).
People should not confuse CBDCs with crypto. They are unrelated concepts.
One does need a decentralized ledger for CBDC, high performance databases are quite acceptable, as there is no problem of lack of trust in a permissined model (no systematic bad actor). If you listen to Moser (and Chaum) video, he even states somewhere the unnecessity of DLTs for retail CBDCs.
There are still some benefits but not worth to bet against the blockchain trilemma in these early stages.
If we think of the financial system as plumbing, the central bank has direct pipes to banks but rarely to citizens. This is not usually a problem except when you need to do a big emergency stimulus push not having direct pipes to individuals means stimulus takes a long time to reach individuals (if it does at all). Even countries like the USA and UK had a challenge rolling out stimulus, so this is a mechanism to bypass traditional banking system in a crisis.
Thats just the banking aspect, the interesting stuff is what you can do with the type of money issued. For example you can build inflation into the currency, to encourage the user to spend it. Or it can be tied to carbon credits as a way to encourage the purchase of environmentally friendly products. I am not saying this is what is going to happen, only that a digital currency directly issued by a central bank has the potential to be used in ways that is not readily possible right now.
QE doesn’t stimulate the economy because bonds and reserves are functionally identical as far as bank capital requirements are concerned and reducing interest rate payments is deflationary.
It does make it a lot easier. The US, for example, was issuing stimulus cheques because there was no way to directly transfer funds into bank accounts. The UK had the same problem, so they pushed their stimulus through employers. In both cases there was no direct pipe from the central bank to the intended recipient which is what I think is most of what BoE is trying to achieve.
QE was the equivalent of using a waterfall to put out a candle. If you squint hard enough and get drunk on supply-side wonk-juice you could convince yourself it worked.
The UK doesn't have the same problem. Our payments are entirely electronic, and there is a direct pipe from HM Treasury to every person with a Sterling bank account. The choice to run the furlough scheme via PAYE was political, not technological.
Our electronic transfer system is sufficiently sophisticated that the government can operate on a commercial bank account and have the money automatically transferred from a Contra account at the Bank of England.
The UK has some of the finest electronic banking facilities in the world.
Do you have a source for this? It seems crazy to me because in Australia almost everyone just got stimulus payments deposited the same as any other government transfer payment or tax return and we don’t all have accounts at the RBA
Actually reserves are slightly better!
(Most bank accounts in UK have no fees if you never go overdrawn anyway, but previously banks could refuse to open one if they considered you a credit risk.)
[1] https://www.bankofengland.co.uk/research/digital-currencies
[2] https://www.bankofengland.co.uk/-/media/boe/files/paper/2020...
The problem isn't the energy usage, the problem is that we're bad at generating energy without killing the planet.
Until then I feel my point stands
It's been around a while, is compliant with a bunch of regulations, is from perhaps the world's best software "stable", and doesn't require idiotic amounts of energy to compute.
Should we not not all run our own Taler servers?
https://foreignpolicy.com/2021/04/01/janet-yellen-mario-drag...
For cash payments, is there good dispute handling? It's terrible, right? And most people who are robbed of their cash don't get it back, right?
http://www.open.ac.uk/research/news/blockchain-startup-calle...
This was sold as: our bitcoin/govcoin solution will keep people from being evicted from their homes because banks take 3 days to pay. Which if you spent 15 minutes looking into you would find out it's a total nonsense.
In the US we have a large portion of the population that is "unbanked" for a varaity of reasons and have to rely on sketchy and scam financial services like those prepaid debit and credit cards and "check cashing places".
https://www.moneyadviceservice.org.uk/en/articles/basic-bank...
A game the Bank of England got out of back in 2008. (People who worked at the BOE used to have the perk of a BOE bank account with the fabled 10-xx-xx sort code)
Funny how these things go in cycles.
Also how can we make money from this?
Hard money is not desirable. Whatever comes out of this "the country's money supply should be determined by some cryptobros" is not going to be the result.
I'd pick the crypto-communities and thousands of people gaming them to design better mechanisms for the everyday people to use, than a few politicians and the banks that are bribing them.
HN refuses to change its collective position it settled on a decade ago. It seems people here got stuck on some abstract projections of "crypto-capitalism-cruelty" and refuse to admit there might be something interesting going on.
Where did the "move fast and break things" people, the "disrupt the institutions" people, and the hackers go? crypto.
Or should we only be working on sass startups to reformat pdfs. is that what we're allowed to work on? everything else is a moral sin?
Utterly Bizarre.
“Move fast and break things” now has a bad rap too in much of society - it turns out not everyone wants their things broken, and some of that stuff was useful. The world is not as in-love with the output of Silicon Valley startups as it used to be, having seen some of them play out.
This of course devalues the savings of the average person when this happens, but it's the only way to recover from mistakes like the mortgage bubble.
In reality, you either do it in secret...or it makes the crash even worse because people would be even more risk averse because they see the government using these non conventional tool...hence "it must be pretty bad, better save some more"
QE is the quintessential example of this. The only American who benefitted from QE was Bernanke, so he got to be hailed as a hero and now everybody genuflects to him and uses his "playbook".
The US came out of the 2008 Great Recession much better than the Eurozone due to its ability to borrow cheaply as a result of QE. The Eurozone was hamstrung by the ECB's inability to act similarly and the 2012 agreement to allow the ECB to purchase "unlimited" amounts of bonds saved the currency.
The US as a country is more dynamic, younger and more risk prone than the Eurozone . That's about it. QE had nothing to do with anything.
In turn the dynamism and risk proneness of the US is nothing compared to places like India, Pakistan or Nigeria.
The EU is still a bit more risk prone than Japan but it's really close
Japan is the most risk averse country on Earth and are stagnating since the 90s , no matter how much QE they do or how much they tinker with their unit of account. Economic growth requires entrepreneurial risk taking and consumer risk taking. Down there they don't even risk going to the bar and approach girls, they hardly have sex anymore. With this social landscape the entrepreneurial risk taking which is necessary to start a business and consumer risk taking necessary to max out a credit card for purchases...that's a pure mirage and tinkering with the unit of account or the plumbing won't save them, or anybody for that matter. Just serves as a way for Treasury secretary and the BoJ chair to keep his job and justify his social status because he is "doing something to fix the economy"
Back to the GFC, the US went down more steeply and emerged faster the same way a dude in his 20s can do too much drugs, be wasted and out for a couple of hours and then go to work as nothing happened in the morning.
The destiny of megasocial groups made up of 400M people are not decided by the few elected officials, it's the elected officials who find themselves in those spots because they enact the policies which are popular among the 400M people.
While US states saw similar affects on their budgets (since they are not allowed to run deficits) this was offset by large federal deficits which kept the economy running. Borrowing costs were kept low by the Fed's QE.
EU central spending is only about 1% of GDP, much less smaller than the US Federal Government spending of 20% in normal years and does not borrow in its own right. The ECB's eventual agreement to stand behind Eurozone governments and pledging to buy their debt was crucial to resolving the crisis.
You like to see human agency in the resolution of the crisis.
In my opinion that's not the case, all the interventions and the tinkering of the unit of accounts and messing with the plumbing of the money markets has a neutral effect.
Wallace Neutrality and Miller-Modigliani prove this mathematically.
You also have to take into account the extreme worry if not outright panic that people have when they see the Fed resort to these sort of hail mary interventions.
"If they need to do this...how bad must it be?"
This was a recurrent theme during the GFC, so there's empirical evidence to claim it's not even neutral but actually counterproductive
also let the dollar be infinitly divisible up to the 10th decimal and then let's talk about the system clogging up
The benefit of a government supplied digital currency is a payment system that isn’t run for profit.
But that bitcoin is just an implementation waiting to become obsolete.
Thus far the only successful examples of Blockchain technology have been based on digital currencies and Bitcoin has done nothing but continue it's success.
On the other hand, there is not one example of "Blockchain technology" put to work on anything that needed it.
i love it because i can write programs to move my money around. I can stream payments with https://sablier.finance i can lend and borrow with https://aave.com I get paid universal basic income each hour from https://www.proofofhumanity.id I use https://yearn.finance/ and https://app.pooltogether.com/ as my savings accounts.
I can take a loan against my collateral with https://alchemix.fi/ to buy things irl. I have a https://monolith.xyz/ visa card to pay for things with my crypto (until bridges arrive).
I can organise with others in https://app.daohaus.club/ and vote in https://snapshot.org/
At what point have we satisfied your criteria for making something useful and successful? I use it everyday, it works great for me.
(all of the above is just a small set of projects on ethereum)
https://www.proofofhumanity.id/ - exists since 2021-01-20 | whois unavailable | 1 Guy from Brazil on Github
https://yearn.finance/ - exists since 2020 | Iceland
https://sablier.finance - iceland
https://app.pooltogether.com | canada
https://alchemix.fi/ Charlestown? - France
monolith.xyz | US
No thanks. I'll keep everything through the bank in my country, which I can call everytime if something would be wrong.
e.g. the yearn dai vault address is 0x19D3364A399d251E894aC732651be8B0E4e85001 i can call the functions at that address via my own node with my own code if i want to.
It isn't in a jurisdiction, no-one else is responsible for my money but me. That comes with risk sure, but it also comes with liberty. They are decentralized applications and I can always opt out and move somewhere else. I can take their code for their financial application, fork it and re-deploy my own version under my central control if i wanted too. Imagine forking a HSBC savings account. It is wild and crazy. Some people don't like that. I love it.
You can feel free to do as you like. A lot of the interest in crypto is that if these tools allow people to coordinate and communicate more effectively than the old tools, then they will come to replace them. If it works as we imagine then you may end up using it and not even knowing.
I wouldn't want all my money on a platform with "risks", for something i already have.
Could be fun, doesn't make it useful though.
The 99% is represented by the regular normie citizen who likes intermediaries because they don't want the responsibility.
The legacy financial system with intermediaries didn't emerge from some evil dictators pushing it onto the world.
It spurred from the market desires, and the market is made up of the regular normie citizens AKA the 99%
Despite what the headlines say, the 99% as a whole controls 99% of the total wealth and they dictate the rules
We don't have to be 100% better, we have to be 0.1% better. I think that is absolutely in reach. I think that will be transformational for many. It will not bring us utopia, it might have bad side effects, hopefully the good outweighs the bad.
And is this not spurred from market desires too? How do we know the difference between genuine forces of innovation and a temporary trend?
I remember using the internet for the first time in the late 90s, it was slow and clunky and magical. We had twenty years of silicon valley startup culture, there was some fun there, but it is so tired. Crypto-communities are the most fun i've had on the internet in a long long time. And the DeFi/DAO/Ethereum stacks feel magical.
Maybe i'm wrong and it is nothing in the long term, but maybe we dont have to assume the authority of the legacy system is legitimate. Maybe the feeling of liberation it brings with it, and the love in the community, will drive the space to continue to out-perform the markets, out-innovate the fintech startups, and out-last the legacy systems.
But I think you are projecting yourself onto the regular citizen.
The thing which up to now the crypto world has managed to capture about the regular citizen is its fear of inflation and strong preference for deflation which allows him to increase his net worth without doing any work, just by sheer deflationary force baked in the protocol.
From a purely financial return standpoint: If DeFi/DAO/Eth is what the internet was back in the days, then it's IRC.
IRC didn't make any money. Facebook which is the dictionary definition of tired and not fun...well it will smash the record as the fastest Company from 0 to 1T.
So the equivalent to that would be betting on the Bank which decides to make Buterin the CEO or the maybe a new properly regulated fintech startup which wears the mantle of DeFi and the PR of Eth, but it's really an old school intermediary.
I get what you are saying about fun, but fun and finances shouldn't be mixed, in my opinion. Because you'll never know what other people who are not yourself would consider fun and if they'd jump on board to legitimize the community and have the token/stock you invested in appreciate
It's not because you haven't seen it in public, that it isn't used.
Also: https://www.fnality.org/home which the bank of england ( mentioned in the article) is a member of to settle between banks.
I also wouldn't see bitcoin as a success. No one that i know of uses it in daily life ( except some being hyped by it and HODL'ing it)
Anyone that holds bitcoin is using it everyday as a store of value. It's unnecessary to go into all the reasons Bitcoin makes sense in this thread, plenty of resource out there. Suffice to say that by any measure, market determined or otherwise, Bitcoin's usage has constantly (or even exponentially) increased since inception. Either this hoard of people are getting more and more wrong every year, or perhaps you're looking at it from the wrong angle.
At no point does the original article mention blockchain, which actually improves its credibility given a Central Bank Digital Currency would not benefit from a public blockchain (as distinct from a permissioned distributed ledger).
> Meanwhile, the Bank of England also announced a new omnibus bank account, a special account at the central bank targeted at regulated payment systems. The new account is well-suited to Fnality, the blockchain-based payment system owned by 15 institutions.
And they ( bank of England) already have blockchain tech to settle between banks : https://www.fnality.org/home
What exactly would a central bank “digital currency” bring to the table?
Dollars, pounds, yen, are already digital.
I'm not sure one way or another if that's a good idea, and I guess they aren't either, hence the forming a committee to investigate.
FWIW, China has been the farthest on this path to the extent that they are claiming they will do a 100% rollout by next year's Winter Olympics.
This is a really interesting phase in this space.
Also you'd expect a ground up design of a digital first currency to include much lower cost of transfers enabling micro transactions and much better speed to settle.