The digital currencies that matter
economist.com
economist.com
Not sure I would describe a power transfer from individuals to the state as a cause for optimisim, but hey, this is The Economist.
It also allows for a true negative inflation rate. Imagine being unable to remove your cash from an account that earns negative interest.
Digital currency enables this. And _does_ massively shift power away from the individual.
This is happening already, but is expected to accelerate over the next few years.
That said, and I know I’m going to get hassle for this, I’m still struggling to be against it (as long as I’m still able to spend the money on other assets as it’s obtained - on the basis that the government can’t freeze what isn’t there).
There are whole classes of crimes (financial and otherwise) that this would make completely infeasible.
Cash is a check on centralized power. An important one.
Firstly in a totalitarian state they can already freeze your assets at will. Chinese banks regularly do this and there's nothing the victims can do about it. Secondly, although unlikely that states will do so, it's perfectly possible to design CBDC to be privacy preserving.
What digital central bank money actually does is shift power from private banks to the central bank. It also gives those who want to hold large sums of cash more security as they will be able to directly hold the actual currency instead of private bank credit money which is uninsured at large sums.
But if the all economical activities are in the central bank I am not sure you can have the private part of all these non-government activities.
Not to mention mining the details of your transactions are so much easier and social credit system is so much enforceable.
The article mentioned of Norway is a good case illustrated someone beyond this line of thinking. But once the central Gov can control all, can even democracy survived one wonder. The decentralised part is the key assumption in democracy.
Will this happen? I doubt it. Because the trend goes to ever more authoritarianism. But it could be easily implemented if there were a will to do so. And again, we don't need digital currency for the government to turn against the citizen, many governments around the word manage perfectly fine without it already. Private banking isn't immune to the law. Instead of being scared of regulation, the citizens should lobby for the right regulation. The current financial system already discriminates against us and only aids the wealthy.
I see this a problematic because now non-totalitarian states will have that power. And it will give them an ability to go "oops we made a mistake and shouldn't have frozen your assets".
And don't forget about all the asset-forfeiture laws that are still on the books. I can imagine police departments all over the country salivating at the ability to grab whatever they want at a routine traffic stop. "Can't explain how you have that much money in your account? Well, we'll just grab it and sue the money, and you can get it back if the court determines it's yours."
Negative inflation is deflation, so you money is getting worth more. From a consumer point of view that would be a win.
Deflation is also a win for people who have inherited their wealth a long time ago, because they have to do absolutely nothing to protect their wealth. It's basically rent seeking but this time it is with money.
There is another problem, the real value of debt grows over time, which makes it harder to repay debts.
However, I will admit one thing, occasional deflation spikes are not a bad thing, if they are followed by inflation that meets the 2% target.
>It also allows for a true negative inflation rate.
Already possible and has nothing to do with CBDCs
>Digital currency enables this. And _does_ massively shift power away from the individual.
No, you are completely misinformed what these CBDCs actually are and do. It simply a central bank "dollar" that isn't tied to an account at the central bank. So 2 banks can transact them between each-other without the need to change balances of their central bank account (balance sheet). Its p2p fiat. Issued by a central bank but does not need the central bank in between every transaction.
It reduces fiction in the technical system. Its purely technical it has zero effect on how people use money or whos in power. (the issuer has the controller/power which is still the central bank)
CBDCs Explained: https://cinnamon.video/embed?v=557927432749843622
CBDCs, if widely adopted, will drain most (if not all) banks of deposits, and thereby trigger a banking crisis. Either that, or banks will have to immediately cut fees and start paying meaningful interest, which will make many banks unprofitable, instigating a banking crisis.
Given that many central banks are prudential regulators of commercial banks, and are tasked with preventing banking crises, it seems very unlikely to me that CBDCs will be released to consumers. Not because they wouldn’t be revolutionary, but because they would be too revolutionary.
In the US, banks do often try to justify high fees by pointing to the relatively high cost of administering small accounts. But those accounts are still profitable for the banks because of the fees—they don't actually want to give up that revenue. And CBDCs don't just threaten banks' consumer banking business.
Although my previous comment was focused primarily on consumer account holders, similar incentives exist for businesses. Any business that has bank account balances in excess of the FDIC insured amount is extending credit to its bank. Yes, banks tend to be trustworthy, but the 2008 crisis showed us that even the largest institutions can fail, and then you are just hoping that the US government stands up and covers more than what the FDIC is obligated to.
As a business owner, it wouldn't be a difficult decision to shift all my bank balances over to CBDCs, provided that the physical security and anti-fraud risk could be sufficiently covered. I would much rather have 100% of my risk exposure be to the US government, rather than to a bank that may or may not be backed by the US government if the shit hits the fan. Banks today are unable to offer interest rates that would compensate for that risk differential.
I am also confident that a CBDC would be easier to use and more flexible from a user experience perspective than my bank's current systems.
All this is to say that we would all hear a giant sucking sound emanating from banks' balance sheets if CBDCs were introduced, not only because people would be closing their consumer accounts, but also because businesses would be withdrawing funds from their business accounts.
Yes, there are accommodations and affordances that can be made to keep the banks in the game somehow, and there are "bank-like" roles to be filled in a crypto economy. However, banks today would find it difficult and disruptive to make that shift, and many wouldn't be able to make that shift at all.
Banks would go out of business. Big banks would go out of business, and that is the last thing that any central banker wants to have happen. The fact that by introducing a CBDC a central bank itself would be the direct cause of bank failures makes the whole concept quite dubious, in my mind.
Kinda [0]:
> Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG , have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.
That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.
Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.
In The Netherlands the ABN AMRO uses a different strategy [1] to nudge clients to put deposits above 10k at a different bank.
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[0]: https://www.wsj.com/articles/banks-in-germany-tell-customers...
[1]: https://twitter.com/wmiddelkoop/status/1387480070390943755
Also, I'm not sure if I would describe this as banks wanting to get rid of deposits, rather than wanting to make money off of them. It's not as if banking customers have meaningful alternatives at the moment, do they?
Edit: wow, that google search is ugly.
You will eat ze bugs
You will own nothing
and will be happy
The most important digital currencies are those that empower to the people. Not fund wars and beaurocracies.
But in practise it's 65% Chinese miners?
And most people use cloud wallets and you know what they say:
Not your key, not your crypto.
> I got the impression that the theory was that the power was the individual. But in practise it's 65% Chinese miners?
Are Chinese miners not individuals? China has the largest population, so it's only natural that it will also have the largest fraction of miners.
A lot of people seem to have a short memory: https://en.m.wikipedia.org/wiki/GHash.io
what?
Governments can't do that with transactions through banks.
Banks have a profit motive and therefore keep trying to do things which value instant reward over stability.
Governments (when not corrupt) are motivated by the actual success of the nation as a whole rather than individual sectors. They mostly only need to care about short-term wins for elections.
What Erdogan should do is to support the agriculture sector and help it provide enough food for everyone.
By forcibly lowering interest rates he is actually cutting off financing for the most productive companies. High interest rates are supposed to drive out unproductive companies and make it harder for them to acquire financing.
If the agriculture sector is highly productive (indicated by rising food prices) then it will automatically obtain more funding and other companies will have to downsize, which makes more resources and workers available to agriculture companies.
Citizens don't trust private banks. They don't trust the government since congress sells out to lobbyists.
Fiscal policy is a tool in a larger toolbox. I agree that it’s not currently being used well, particularly in the Eurozone where a zero-sum game is played out between the “export based economies” and the “economies screwed over by the export based economies but are stuck with a currency they don’t control”.
My hope is that more effort is put into society building, and a versatile toolbox is needed.
I'd say the Economist is pro incumbent-centric market
https://www.economist.com/leaders/2020/11/26/will-big-firms-...
"Yet the rapid changes that have been forced on many industries are leading to innovation that will outlive the pandemic—and in some cases are leaving incumbents less mighty than before. Consumers and trustbusters alike must hope that these newly competitive parts of the economy remain hotly contested long after the pandemic abates."
Look no further than state control of resources (in this case oil) in the two countries Norway and Venezuela. Same idea (state controls oil revenues) and two vastly different results. Because one is a democracy and the other bought public support by social programs spending to prop up his cronies' assault on government wealth.
So yes, ideal thing would be democratic control over capital and means of production. That's better than the current effectively oligarchic control where a small elite disproportionally holds unaccountable and opaque power. However, that's probably still better than an authoritarian government control.
Libertarians want a very strong government, they simply don’t want it to do much.
"The idea of a strictly limited government has proved to be utopian; some other, more radical means must be found to prevent the growth of the aggressive State. The libertarian system would meet this problem by scrapping the entire notion of creating a government." (The Libertarian Manifesto)
https://en.wikipedia.org/wiki/Libertarianism
“Libertarianism originated as a form of left-wing politics such as anti-authoritarian and anti-state socialists like anarchists,[6] especially social anarchists,[7] but more generally libertarian communists/Marxists and libertarian socialists.[8][9] These libertarians seek to abolish capitalism and private ownership of the means of production, or else to restrict their purview or effects to usufruct property norms, in favor of common or cooperative ownership and management, viewing private property as a barrier to freedom and liberty.”
That said, anarcho-capitalist still wants the rule of law they just don’t want to call it government. Rothbard's anarcho-capitalist society would operate under a mutually agreed-upon "legal code which would be generally accepted, and which the courts would pledge themselves to follow".[11] This legal code would recognize contracts, private property, self-ownership and tort law in keeping with the non-aggression principle.[11][12]
Anyway, Rothbard, a prominent anarcho-capitalist, states quite clearly that "libertarians" (i.e. anarcho-capitalists) are opposed to government, which contradicts your statement that anarcho-capitalists want "a strong government".
Anyway, I agree that Rothbard doesn’t want government, but I am saying he does want the rule of law which is a separation point from pure anarchism. How exactly you get a court system that’s not backed up by the threat of force without people simply ignoring it is a point of contention.
I don't think there is a 'vacuum' because people have a need for a boot on their face, that first the King put his boot on people's faces (which is now how it worked, it was a huge mixed bag), and then the govt must do it or else a strongman might do it again.
There is no 'power vacuum', just a need for certain societal order. How that societal order is provided is where all these things happen. Monarchies are 'a' way to provide that societal order (for national defense and other things for that matter). Similarly Democracies are another one of that. Imagine if you went to 900 BC and tried to install a democracy to the people there? Would it really work out? Would people happily rejoice? Or they'd lose their democracy to a King soon enough?
There is an argument that can be made that political systems people embrace, depends upon the weapon systems available to them [1]. That, printing press gave us the age of enlightenment (and Protestantism, which is a reversion of Christianity to the original text, as opposed to the Papal church), but the invention of (widespread) guns gave us the Democracy. Because earlier only a lifetime of trained soldier could fight but now the training of a firearm (to become lethal) can be acquired in a very short amount of time.
As an anarchocapitalist, in 2000s we envisioned private companies providing that societal order which allows us to get away with governments, and this was heavily criticized that this would just cause private companies to just become govts. But in 2010s, I can say that blockchain (and yes I understand the unpopularity of the idea) have the capability to create that societal order. In 2000s we always envisioned [2] that the free market money would look like Amazon Bucks or Walmart Bucks, but now we realize that with cryptocurrencies we don't need a single company but a decentralized network to do the same job.
1. Weapons Systems and Political Stability, by Carrol Quigley
2. https://www.lewrockwell.com/2008/11/sj-masty/austrian-econom...
In short, if cryptocurrencies threaten the power of violent governments, they will use violence to destroy cryptocurrencies. I don't see any way around it. Crypto is a technical solution to a social problem.
There are smart contract based solutions like Ethereum. The latter offers to create system which fundamentally avoids disputes (like a lock, once you lock your home, you don't have to worry about someone easily just entering and squatting your home). Govts have no reason to oppose this, just like govt have no real reason to oppose people using Uber to hail rides.
Smart Contracts can also create dispute resolution mechanism which does a far better job than today's judicial system or the opaque arbitration system we have today. Again, govts don't have a problem with this.
You're confusing a smart contracts based blockchain platform with 'replace-the-dollar' cryptocurrencies like Bitcoin Cash (not mentioning Bitcoin because they aim to replace Gold from your portfolio, and not the cash). These things threaten the govts, but the former category of technology doesn't.
Democracy is the best system, but it still needs to be checked in different ways. Like individual rights. I'm open to the idea that currency competition could be interesting.
The term to search for is free banking.
Both legitimate and questionable issuers were both claiming to supply "dollars", either directly or as an IOU for government-issued ones. There was consumer confusion baked right in, and probably to the great benefit of dishonest players. Some privately issued coins during the gold rush were a bit underweight, and a lot of private paper currency traded well below face value. A whole system of newsletters and discounting rates evolved to document exactly whose "dollars" were legitimate.
A new currency competition environment in 2021 has this sort of awareness built in. We're not in a newly cleared Homestead Act town dealing with stopgap measures for a lack of government issued currency. Anything but a FedCoin, even a Tether-style linked product, is clearly a private product and has a documented exchange rate. There isn't the same "information travels slowly in 1860" gaps to keep fraudulent products afloat.
I wonder how much of the interest in alternative currencies was based on hoping to exploit that sort of timing gap. The existing ones that don't have a built-in exploit system-- the "labour pool" ones denominated in hours, the "keep the money local" closed-loop currencies, don't seem to get huge momentum beyond local enthusiasts.
In a way, the current crypto FOMO mania smells of similar "trying to stay ahead of the information flow" plays. It's less that the issuers are hoping to pass 80 cents of gold as a dollar, but more speculators buying them at 40 cents, not really knowing what they're actually worth, but hoping they will settle at 80 some day. I wonder what happens once prices stabilize-- will interest fade away if they're back to competing on technical merit rather than the possibility of moonshot gains?
A well-regulated democracy isn't a good thing inherently. People can be awful and oppressive and this is why founding fathers rejected the idea of a democracy for US. We needed to put a republic with heavy constraints on the power of the govt precisely for that reason.
A great example of well regulated democracy which is terrible is India, because its founding fathers failed to control the power an average voter has, in India you can file a Public Interest Litigation [1] to the courts and get cryptocurrencies banned (without going through the legislative body).
Compared that to say Lee Kuan Yew. Not free press (can't criticize Lee Kuan Yew, protest freely, or strike freely), but you'll see Singapore work way better than say India.
1. https://en.wikipedia.org/wiki/Public_interest_litigation_in_...
This statement is very short, but it is full of unsubstantiated implications:
1. To have such a transfer, there must be powers to individuals in the first place. But currency in its modern sense has never been "individual power". It's a common denominator of value transfer, and a measurement of credit. No individuals can possess such thing. It's inherently social and community based.
2. The power has always been within the government. It was somewhat stolen by the capitalist moguls, who, including other pro-market deeds and statements, have managed to turn government into the foundation of monetary power, but deprives the government from exercising actual control over it. For instance, government forced taxpayers to bail financial institutions, but are powerless to fundamentally alter the behavior of the financial system.
3. Transfer, no, these type of social-economic dynamism can never been reasoned using the English word "transfer". It's more like social engineering, of adapting people's perception, setup societal, and business organizations, and laws to match that design.
You and the economist are basically on the same camp, but arguing a superficial issue that doesn't even matter.
The goal is always make government become the safety net of the actually powerful entities, and ensnare the whole population to surrender the majority of their freedom for the enrichment of the few.
>> They promise to make finance work better
That's the good part. ("better")
>> but also to shift power from individuals to the state
That's the not so good part. Note the "but".
Given the nature of bank regulations today, I don't think that the power-relationship between individuals and the government will change substantially with the introduction of CBDCs. Even today, governments set policies as to what kinds of accounts banks can keep open, and what type of business bank customers are permitted to transact using their bank accounts. Banks are required to report potentially suspicious activity surreptitiously to law enforcement agencies, and are required to disclose their customers' information and activity to the government when asked. I'm not sure how much more power individuals would be giving up.
What will change, however, is that banks would find it difficult to operate once a CBDC has been introduced in a country. Consumers would prefer to receive and make payments through an electronic system that charges lower fees. Businesses would prefer to hold their cash assets in a flexible medium that is fully backed by the central bank, rather than having to worry about extending credit to a commercial bank (which could become very risky after the introduction of CBDCs). Bank balances would be transferred to CBDCs on a massive scale, putting many banks in financial peril.
An argument might be made that CBDCs would speed up the demise of physical cash—which I wouldn't entirely disagree with. That is, however, a question pertaining to the slope of that particular trend line, not its general direction. The current banking system is already pushing us towards giving up cash; the pressures that are preventing physical cash from being eliminated are largely cultural and political, not economic or infrastructural. CBDCs' effect on the politics and culture of physical cash will at most be general and incremental.
The Economist has been possibly the leading voice for free market capitalism since the mid-19th century. If it has any mission, that's it.
Good grief. I can only hope this was just a poor grasp of English on the part of the author, not actually intended as an imperative.
The article goes on from the premise that digital currencies are something new, but aren't almost all currencies already digital? I mean when a central bank decides to lend to retail banks (last resort) it just updates a column in its system. It doesn't actually print and ship physical currency. What am I missing? Is this just new hot buzz?
EDIT: I'm not too familiar with the process of "printing money", but I assume that Fed/central bank just buys some assets, and credits seller's account in its system. That all sounds pretty digital to me.
Imagine things like money that self-destroys if you don't spend within certain amount of time or money that you can only spend at a certain place or for a certain purpose. The control that central bank will be able to exert is increasing by like 10 fold.
I don't understand your example about money self-destruction. What's the actual innovation that will make this possible and why it's not possible now?
How high powered money gets intermediated into actual economic activity is probably one of the largest unknown factors in central banking/monetary policy. This would, in theory, remove that discussion.
That being said, if you are familiar with the history of monetary policy across countries, there is already quite a significant spectrum of central banks adopting new approaches to this problem. And it is not particularly evident that removing banks from the equation improves outcomes (although this is one of those lessons that falls in the blind spot of certain popular ideologies today).
Simply: when you talk about disintermediation of banks, you get into the discussion of whether central banks are able to make lending decisions better than banks. When this works, as in Japan pre-1991, it works very well...Japan post-1991 demonstrates that it doesn't always work well.
Also, this would change the politics of monetary policy. Most monetary systems that disintermediate banks are usually one-party states with extremely high levels of centralization of economic authority (you also tend to see heavily monopolized banking sectors, the US is the polar opposite of this, although this may not apply in this case). I am 95% sure that if you attempt to do this in a democracy, you will Zimbabwe your currency quickly and trigger a move away from democracy (unf, this also falls into a blindspot of lots of people today...economics PHds don't learn this stuff). It is very hard to have stable politics when the winner of an election will gain the power to make their family/their associates/all political allies permanently wealthy.
EDIT: because I cannot reply, if you are asking how this fails to change anything...read a monetary policy textbook. There is a deep lack of understanding about basic elements of the financial system here (as ever). This isn't a facetious comment...srs, read a book.
EDIT: Do I understand it correctly that under this new system, there would be no money multiplication or IOW no fraction reserve banking?
If you read about Positive Money, they have written a few books about how this works. A significant simplification is: our monetary policy would be more like Japan pre-1991...but it is more complex than this (the politics of this are also significantly more complex...no-one has written any books about this). But reading something like Mishkin is a better starting point.
EDIT: there is no "money multiplier" in the real economy, that is a device used to teach undergraduates...when banks make a loan, they just credit your deposit account, the money doesn't come from anywhere, the bank needs no reserves (reserve requirements are used functionally in China, I don't believe they are functional in the US, and they haven't been a central policy instrument in monetary policy generally since the 60s)...so the central bank "outsources" money creation to private banks, the exact purpose of these proposals is to stop this outsourcing although the actual implementation will vary.
You say there is no money multiplier. But we do have capital requirements, don't we? Like Bâle III. Doesn't that equate to an implicit 'percentage' for the money multiplier?
That said, if we change "capital requirements" to "reserve requirements" your question is still valid: this does become an implicit money multiplier. The fallacious thinking lies in assuming that "banks cannot lend in a way that exceeds their multiplier." Because they do, all the time.
In normal (non-QE) times, banks keep the minimum amount of reserves they need to meet the requirements. This means any loan they make violates the reserve requirements temporarily. After they've made the loan, they go get more reserves to cover the requirements.
In other words, the money multiplier does not say anything about how much they can lend given the reserves they have, it says (indirectly) how much reserves they have to get after they have made the loan.
(Pure curiosity)
It doesn't matter who creates the money and if you create the money in a way that does not utilize resources or labor it doesn't even matter how much you create.
The Fed and the government effectively have an unlimited number of dollars at their disposal, if you were pragmatic their bank account balance would be literally infinite dollars.
This oversimplification should make it strikingly obvious that inflation is not driven by the amount of dollars, after all there are infinite dollars in existence so expected inflation is infinite according to old economic wisdom but for some reason isn't.
If increasing the money supply by infinite dollars does nothing, then so does increasing the money supply by a few trillion dollars.
On the other hand, if you give people money and they spend it, you can bet that it increases inflation even if the total amount of stimulus is very small.
However, you're right that there is bureaucracy involved in the lending business and it can be a bottleneck.
This is true, but the way Zimbabwe's government did it is via repossession of land. Once you cross that line nothing is sacred anymore because the government is willing to do anything.
Since the wallet itself would also be implemented as a bank account, likely controlled by the central entity they would be able to monitor both it's balance as well as where money is spent and transferred to. This enables the implementing of monetary polices such as "Here is $100 to spend on local restaurants within 30 days. Any unused money will be removed on the 31st day."
Consider a database where each account has the owners name, local address, other demographic data in addition to their account balance. The database also stores their transactions.
Now allow businesses to have their own central bank accounts as well. The business has its location and type of business listed as well.
Assuming all this data is entered correctly and up to date the implementation of "$100 to be spent in 30 days on local restaurants" is as follows. Assume local is, within 10 miles of the account owners home, as a nonce value:
* Add $100 to person's central bank account * Over the next 30 days person buys: shoes locally, a pizza locally, and orders a book from Amazon. * On day 31 the central bank examines all transactions. By referencing each account money was transfered to the bank can lookup distance and type of business. * Remove the unspent amount, if any, from the account.
Now, there is a fun edge case here: what if the person spends their $100 credit on books from Amazon instead of food and has no money left? Do they end up with a negative balance? This penalizes both people mispending money as well as those where they spent money at a place that is miscategorized ( for example, the local deli is categorized as a shell corporation ). So clearly the basic idea needs some work, but it is not undoable. Especially if business owners are incentived to have their information be accurate and up to date to recieve monetary funds.
In other words if banks are sitting on money, they think the risk of not getting it back is worse than the interest they would be getting. Your argument requires them to be wrong about that, which is pretty unlikely given the number of financial crises we've seen caused by a glut of bad debts.
As far as I can, the only thing you can get with a new digital currency is the ability to decouple it's value from the dollar.
That's because banks don't work like that. Money isn't a thing, it is a unit of account.
Banks create money out of nothing by discounting collateral [0]. You turn up with a property, the bank has it valued at $100K. The bank then creates a financial instrument called a 'mortgage' which it holds as an asset on its balance sheet and which is a 'charge' over that property preventing you selling it until you discharge the mortgage. Then they issue $90K of their own liabilities which you call a 'bank deposit' into an account with your name on it. That liability balances the new asset.
And that's about it. Loans create deposits. The central bank doesn't get involved in lending at all. Never has.
[0]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
The reserve requirement (banks must maintain so-and-so many percent of their money in central-bank issued reserves) simply means that if, after loans are made, the central bank discovers that the private banking system is low on reserves, the central bank sells new reserves to the banking system to satisfy their demand.
In other words, customer demand (which is relatively inflexible: you don't take out loans for fun, you do it because you need them) drives private bank loans, which drives creation of reserves by the central bank. Not the other way around.
The market dictates how much money is in circulation, by demanding a particular amount of money. The central bank can't do anything other than oblige, because if demand outpaces supply, our economy will stall.
How is it that the Federal Reserve added more than $4 Trillion of M2 currency since the pandemic started? [1]
Was it responding to the "increased" credit demand from shut down businesses that see no light at the end of the lockdown tunnel?
2. If there is not demand from the economy for credit, adding reserves to the system will push the interest rate very low (that's happening now). If there is not demand from the economy those reserves will not be lend, ergo, they will not be inflationary (they could affect other financial assets prizes though).
3. Apart from keeping the interest rate where they want, adding reserves to the system will happen when the fed buy assets from the banks (they are payed with reserves). One of those assets are government bonds. So, the Central Banks can finance without limit (other than inflation) fiscal expansion from the treasury. This money, used to finance government spending, will be spend in the economy. So, it's the fiscal policy what will be inflationary, not the number of reserves per se.
The interest rate, at the end, it's not decided by bond markets or private banks lending one to another, but by the central bank adding or removing reserves to the system. So, the central bank can decide to make lending more cheaper (as is the case now) or more expensive (like in the 70's in the USA).
(It is in the margin in the sense that more doubtful gambles pay off when borrowing is cheaper, but the large part of borrowing happens because of an immediate liquidity demand, not a desire for leverage.)
Central banks can make lending/borrowing a worst business (higher interest rate) but they can't force people to borrow.
So, monetary policy is very limited when demand falls, then fiscal policy is necessary, but, until recently, fiscal policy was anathema because of ideological reasons.
(1) - https://www.investopedia.com/terms/p/push_on_a_string.asp
Take China's e-yuan:
1) You directly have an account at the central bank and spend from it through an app
2) Central bankers can trivially apply stimulus instantly (no fuss about the $1200 like we had)
3) You can do crazy shit in times of recession like money that expires unless you spend it on goods in order to increase the velocity of money
4) Money laundering would be pretty hard.
5) Being able to easily build fintech products on top of it, instead of depending on dumb solutions like Plaid.
This sort of thing would be gamechanging IMO.
So, a gift card, but for everything?
This in particular sounds like a fantastic idea.
One of the more out-there leftist ideas I've heard proposed is a monetary system where everyone gets a basic income but all personal bank accounts have a negative interest rate, to disincentivize accumulating wealth for wealth's sake. This seems like a simpler and more reasonable version of that.
I don't think so. I think the idea they want the money to lose its value only if someone hoards it. If it's spent quickly enough, it retains its full value now and in the future. That's not how hyperinflation works.
If every human in the nation lost trust in the currency but there was enough production capacity to feed everyone then exports would rise until the currency appreciates to normal levels again. However, most nations suffering from hyperinflation don't have enough products to export in the first place.
This thread demonstrates vividly how little the average person understands about economics and finance, even in a place like HN.
Would you sell your gold for expiring money? The exchange rate would be much worse than the regular one.
Anyone who tried to hold cash through COVID probably isn't going to do too crash hot either, there is a lot more money around now than there used to be.
The desire to tax accumulated wealth is equivalent to the desire to tax saving and deferred consumption. People like to dance around this point but it's difficult to avoid how abhorrent this is when it's properly framed.
I specifically mentioned paving roads as an example of productive investment, how can you possibly claim I'm "condemning it as speculation"?
Investing, in the sense that the company whose stock you are buying does absolutely nothing to justify the stock growth is absolutely horrifying.
However, the good news is that the person selling the stock now has money and that person should better figure out how to do the first type of investing or they end up suffering from inflation.
Which is odd to consider, since the whole concept of money is 'storing' something in a fungible way, but still worth thinking about. To what extent does 'money' actually provide an improvement over 'commonly understood capacity to kick your head in', which is another sort of power a person or organization might have? Clearly if there's no money then there's the more immediate physical threat of force, or a more charming interaction like giving someone food or shiny rocks. Money permits an abstraction of this, so what is it incentivizing over the more primitive modes of interaction?
It also makes it the best possible time for 'pitch a wild idea that's going to be the next great business'. I still think that post-50s wealth created Silicon Valley: relative to how things are now, people were absolutely coddled and had tons of disposable income and spare time, which they used to pursue things like the Altair (a seemingly unproductive activity).
This became the democratization of something important, and it's taken this long for the power to swing back to capital holders.
Why just PERSONAL bank accounts? To disincentivize being a person?
Assuming we allow every citizen to borrow $1000 at -1% then the effect is very similar to helicopter money because the value of the debt is being eroded by inflation and you have to pay less back than you borrowed.
Unless you have so spotless opsec that you dare store a mortgage's worth of cash somewhere for decades (and you get that much cash in first place in negative rate environments - I doubt banks are giving you that without really good excuses), you need to invest the money somewhere. Bank accounts? Of course, you get even more negative rates there. Stocks? Well, it is not that different to positive rates, you take quite some risk there. Houses? Well, that's what mortgages are for. But assuming a 100k mortgage, is that really so fundamentally different if you need to gather 99k instead of 101k from somewhere in 10 year's time?
[1] https://www.theguardian.com/money/2019/aug/13/danish-bank-la...
Sorry, you touched a nerve. They seriously think it’s a good idea to type your bank password into an app that is not your bank. That is the best we can do right now for making payments. Or credit cards with only 3% transaction fee. Coinbase asks you to do this. Coinbase.
I’ve done some work on the Trezor code base. Once you see how much care this completely volunteer BIP process has put into security, consumer bank security becomes enraging.
My bet is that very little will change. The fed is the banks.
EU Payment Services Directive 2 (PSD2) https://en.wikipedia.org/wiki/Payment_Services_Directive#Rev...
Turns out that it's best to ignore how the sausage is made.
Why would anyone want that?
Instead we all got $1200 and pumped it into Doge, some EV SPAC, or similar speculative "investments".
If I have enough money without this check due to personal savings and economy, it would be pretty much unequal and unfair situation if I won't get anything from this helicopter money (making it expire) and some guy who got himself several debts for parties and travelling will get help.
Let's say that people actually spend money given to them, but invest their remaining saving into investments, if that make someone feel better. If I have my own 1200USD and get "expiable" 1200USD for free - it doesn't matter which one I spend, technically.
This is government-enforced consumerism. Nobody wants to be forced to buy random stuff they don't need just to keep some struggling businesses alive. Saving or investing this money is a much better decision.
Every purchase would be coded like they already are with credit cards. You can spend it only on the right category. Good luck trying to launder it when every transaction is logged and easily queryable.
"Government-enforced consumerism" sounds an awful lot better to me than picking winners and losers like in 2008 or massive stimulus that did nothing but boost asset prices like 2020.
You could make informal trades where you pay for something someone else would have already bought and give them a small discount. Or just buy something and resell it immediately.
> Good luck trying to launder it when every transaction is logged and easily queryable.
I buy something for someone, they pay me back in normal money or XMR.
It looks like they want to make it impossible to save money in order to increase consumption "for the good of the economy". I wonder how people are supposed to increase their net worth like this.
3) Isn't it perhaps a useful way to provide a stimulus that people who already have enough cannot simply pile onto their hoarded supply?
4) I mean obviously we want to avoid money laundering.
I pray I will be alive when this system collapses.
Interestingly Jim Bianco (who you may see regularly on old-financial media) argues that all of these currencies will fail in favor of the defi stuff that's already being spun up. For example by the time fed coin is even being tested (2025) the technologies behind cryptos will be so mature that the tech the us fed is using (from 2015) will be dead on arrival
Just checked and this has now been pushed back to 2023.
I know that there's been a lot of improvement since then, but once you reach a certain size, things just move very slowly. It's less about the tech, and more about the pace at which stakeholders get on board.
A digital currency system would make a digital representation of the actual money that could contain a bunch of information, like unique serialnumbers, creation date, expiration date, physical equivalent etc.
Imagine using GIT for accounting.
A digital currency would not only have value like cash, but would be transferrable like cash. The only middle-men would be the fed (or whoever would be running the currency), who would track transactions to prevent shenanigans (like someone trying to spend the same digital dollar twice).
As an aside, the hype around cryptocurrencies is that they offer the same sort of cash-like transferrability, and by using a distributed 'trustless' model, they are able to guarantee safe transactions without the need for a trusted third party like the fed.
What would prevent a trustless digital coin from being forged?
It's by far easier if we have trusted parties, like with SSL certificates,, or other digitally signed and cross-signed stuff. It of course puts such cash under control of the Fed. But it's sort of expected of a national currency.
Also, fully traceable by design digital currency is very unlike untraceable cash. Of course, no government, no law-enforcement agency would miss a chance to make all financial transactions visible. Of course it's only to prevent money laundering from terrible crimes like sex slavery and contract murders, but the ability to know e.g. the sources and targets of any donations would be a nice side benefit.
What actually prevents forgery are the harsh punishments for it. Historically, forgery of money was often associated with death penalty. Authorities know that centralised money (both metal and paper) is a brittle illusion that must be maintained by force.
All of this to say that ease of forgery might not be a good argument against a currency. Difficulty of forgery might, on the other hand, be a very strong argument for one.
[1]: A bit of an anecdotal story, but still illustrative: a few years ago I paid for a thing with coins. The seller asked "What is this?" And I thought to myself "Money?"
It turned out there was a good reason for the question: one of the coins was a Canadian cent. I live half a world away from Canada; it just looked a little bit like one of the domestic coins, so I had accepted it from somewhere, who probably had also blindly accepted it from somewhere else. Despite it not being legal tender, it was accepted at a value far above its nominal value in the country where it would be legal tender.
This was a coin that didn't even try to look like a domestic coin. It just happened to share some superficial similarities. All of this to say that with just a little bit of effort, you can probably create something that will circulate just fine for a few hands at least.
Snowden proved that wrong.
The next logical steps are that (1) it can never default on debts in its own currency unless it chooses too and (2) we don't need to "pay for" new spending with taxes. (Although taxes are still important for a variety of reasons: providing incentive structures, preventing inflation.)
Using taxes as a means of controlling inflation (raising them when inflation rises) may be true in theory but it is of zero practical importance. Raising taxes during inflationary periods, compounding the loss spending power, is a fantastic way for a politician to lose their job.
The trick is that yes, you are printing money, but you are also "printing" goods and services provided by people who would otherwise stay unemployed or underemployed.
Are there any good reasons for keeping people unemployed or underemployed? I can't think of any. People who don't want to work or can't aren't considered unemployed. Who exactly is losing out? That fast food restaurant that is underpaying people? Rich people whose relative wealth vs the poor is growing?
A better description of the concept may be a centralised digital ledger.
Currently the government has a database that tracks what you owe in taxes. Your bank has a database that tracks your savings account. Your pension manager has an account that tracks your retirement investments.
And we all just kind of hope that double-entry accounting mostly keeps the whole ship afloat for most of the money.
A CBDC would essentially be held on a single ledger by the government. Wherever the money goes is tracked by whoever is holding it, but the single source of truth is the government ledger.
It solves a lot accounting problems but introduces privacy concerns.
Nope. Individuals cannot own digital dollars. I have dollars in my checking account, but these aren't real dollars. If I have $100 in my checking account, this means Schwab owes me $100. It doesn't mean that I have $100. It doesn't even mean Schwab has $100.
https://www.encona.com/posts/central-bank-digital-currencies...
Copying “autocrats who value control above all else” doesn’t seem particularly open.
HN is wonderful but it's too many engineers (incl me!) who haven't a clue about economics, digital currency, monetary policy, etc.
Right now there is still scarcity, but other than housing all the essentials needed for life are not scarce at all.
edit: All these things you can't import from overseas.
[0]: https://ethresear.ch
Govcoin: Digital, so you have no privacy. Centralized, so your money is subject to inflation and confiscation and can be arbitrarily frozen. Government, because let’s limit this to a region or nationality.
Pitting these clearly inferior govcoins against existing cash instruments let alone fixed-supply global cryptocurrencies like Bitcoin is going to be a good old fashioned boondoggle.
FWIW, real world data suggests end users avoid adopting inflationary monies on an open market: “Freicoin”, a cryptocurrency which taxed its holders a small percentage annually via demurrage “for the greater good”, failed to see any level of user adoption, despite having a sufficiently high profile in the cryptocurrency world at the time (c. a decade ago).
In spite of what many people claim, it turns out no one actually wants inflatable money assuming they can easily opt out of it.
Yes! I feel like the people who criticize decentralized cryptocurrencies have never had their accounts frozen. Coins like Monero are absolutely needed...
https://john-tromp.medium.com/a-case-for-using-soft-total-su...
Bitcoin does protect against inflation but it's ineffective against government controls because it's not fungible. The government doesn't need to literally seize the coins, it can just blacklist them. This prevents spending and makes them useless.
> Or were you merely making mention of a “coin” in your investment portfolio sans any financial disclosure statement, as is so (insufferably) common?
I mentioned Monero because I thought it was the most relevant coin. I was talking about bank account seizures and freezes, something that actually happened to everyone in my country in the 90s. A huge reason why my family enjoys some degree of prosperity today is we saw it coming and withdrew everything in cash. I believe that as a proven privacy coin Monero is the coin most effective at avoiding that sort of government stupidity.
I do own XMR.
You aren't supposed to want money. It's a medium for exchanging goods and services. Generally speaking, people's lives get better the more goods and services they exchange. If you have all the goods and services you need, you're supposed to loan or invest your money to someone who has an immediate productive use for these goods and services. Deflation disincentivizes these exchanges, and a fixed supply is even worse. That's why people aren't using Bitcoins any more for commercial transactions than they were 5 years ago.
“Goods and services” strikes me as being overly broad. Self-education is increasingly obtainable online, and has had an outsized impact on my quality of life compared to other things I’ve spent money on. Regardless, it’d be putting it mildly to say there’s ample room for interpretation here.
(And this is without getting into all the abstract philosophical concepts that creep their way into any discussion about “life betterment”.)
> If you have all the goods and services you need, you're supposed to loan or invest your money to someone
Particularly if we take an “infinite growth at all costs despite finite physical resources” world view. But if not...
> Deflation disincentivizes these exchanges, and a fixed supply is even worse.
Worse for who? Humans? Humans are already vastly overpopulating this planet. To someone like myself who’d be pleasantly surprised if humankind lasted another three decades here on Earth, I think your system of value is of questionable merit. We need to curb growth, starting today, to avoid an ecological collapse. A deflationary economic system like Bitcoin can help avoid calamity for billions.
Which would be impossible if someone with a lot of money decide to hoard it instead of investing in YouTube.
You can't guarantee that when people spend less money, they'll favor cutting out "bad" things over "good" ones. If something is causing ecological externalities, you can tax always tax it. If something has positive externalities, but you didn't raise enough money in taxes, you can fund it by printing more money.
>Worse for who? Humans?
Half the world lives off less than $5.50 a day. They don't have the luxury of caring about the environment. Madagascar nearly completely deforested, just from burning fuel for heating and cooking, so it's not like it's guaranteed that less economic activity is going to be any better for the environment. Conveniently, poor people are also the ones who have most kids because they are the only source of retirement possible. The only ethical way to curb population growth is to develop the economy in those poorer areas.
Just what we need. More power given to the state and taken from individuals.
Nothing, I think we are tracked enough with private companies, but they are restricted in their actions by the law. Governments are able to change the law and have all the power they want to make you respect them. People are free as long as they can decide how they allocate their purchasing power. I think democracies are fragile, and if people don't defend their liberties, when those liberties are removed, they won't be able to get them back that easily. And as you said, it can ha pend very fast.
With the current situation, it is possible to trace your history if you are suspected of something, I think this is fine. But tracing everybody permanently open the doors to tyranny.
Also I don't think crypto is a solution if only a extremely low percentage of the population is using it, specially if it becomes outlawed.
What if satoshi (unlikely but maybe the Fed itself) decides to liquidate its position of at least 1M Bitcoin. Ethereum foundation forks ethereum again to roll back transactions. Or Doge is uncontrollably minted (I don’t think it has a supply cap) or Elon decides to stop pumping it and decides to dump it.
Everything else in between is just a bunch of discord/telegram armies pumping for their own interests. I just that’s great so long as you have the social credit to be on the inside.
(wouldn't be shocked if he holds BTC though, since he got Tesla to buy in there)
Look at how he pumped it leading up to 4/20/21 (DogeDay) and then Twitter bots and scammers pumped it on Twitter getting “DogeDay” trending by multiple times and all the uneducated “investors”, if you can even call them that, bought in at the height thinking it would pop to $1 on 4/20/21 DogeDay with Elon’s continued support and instead it got dumped losing 50%.
I wrote a post on here about the scam and said it would get bought back up on the dump and go to new all time highs as the uneducated investors that got scammed sold due to fear and not only did that happen it happened on Musk’s tweets of doing SNL and skits of the DogeFather. It honestly is like a predictable a moral neural net that’s single purpose profit on self created pump and dumps that it is capable of creating with unlimited liquidity.
When I made my post it got the inevitable comments of “so what, it’s no different than X, and the way it’s always been”. Maybe but its always poor people targeted and ultimately hurt, it’s immoral and should be fucking criminal. Especially if he is pumping it just for shits and giggles.
Anyone who buys into a get-rich-quick scheme is a greedy fool, rich or poor.
Specifically, it's not Musk's fault that it seems a large numbers of stupid and credulous people are choosing to have their "investment" strategy influenced by the tweets of a well known Twitter jokester. If Musk tweeted that paper shredders actually convert $100 bills into gold, should he be liable for any losses incurred by anyone stupid enough to think he was being serious?
It’s the same individual who has already faced legal repercussions with the SEC for his Tweets related to publicly traded stock. Let’s not forget Martha Stewart didn’t actually go to jail for insider trading, but she did go to jail for publicly stating she would be found innocent of the insider trading and they ended up nabbing her for those comments which amounted to securities fraud because they boosted her stock price.
It’s not like he doesn’t know his tweets are primarily influencing young, uneducated investors, and as they say in tech...that’s a feature not a bug. And for what it’s worth your comment is consistent with the opinions of scammers who never accept responsibility, to them it’s always the victims that deserved to be scammed for what ever reason.
The main (and to some people, only) point of laws is to protect people _from other people_, not from _themselves_.
It’s the stupidest thing I have ever heard...to not protect someone because they should have been smarter than to act upon a desire selfish desire to make money, well no shit that’s why fraud and cons work, because almost everyone acts on the desire to make money. It’s why people have jobs and work, that doesn’t give employers a green light to defraud employees.
Should all those old people who fall for scams down to the Nigerian price email scams not be protected because they are stupid and acted selfishly?
Let’s say a casino rigged a deck of cards or rigged a slot machine and falsely advertised the odds of winning to the public, would victims not be entitled to protection because they are stupid and acted in a greedy way to get rich?
Why shouldn’t the victims of Elon, all the Twitter bots , and those behind them, that are pumping and dumping Doge be protect besides calling them stupid and greedy? What is it is shown millions of the victims are actually just kids that idolize musk? Are they still just stupid and greedy and thus deserve to be scammed?
Just to be very clear, even if everything about your argument was correct (which I don't grant), you're talking about hypothetical future victims, in a hypothetical crypto crash, because Dogecoin (along with the rest of crypto) is at a dramatic all-time high.
Doge isn’t a scam, it (as with all crypto investments) behaves like any other investment vehicle, except that it has no inherent value and produces no value.
Due to game theory mechanics most network participants have an incentive to play by the rules and agree on rules that are as fair as possible. A hard fork has to be embraced by the majority of the users to be accepted. It's not just the miners or the whales who decide the rules.
Of course there are countless of cryptocurrencies in use right now of which most are doomed to fail (maybe even all but one are doomed to fail).
> A whale liquidating lots of BTC sounds like a sweet bargain to me.
This is my point, it’s all me, me, me. What about the people that lose everything. And what about when it’s no longer a situation of “only invest what you can afford to lose” rather that’s the currency you get paid in and it’s regularly subjected to pump and dump schemes. That’s not a system of currency, much less a democratization of money.
The entire defi system is currently set up for people to literally act as vultures and skim money from liquidity pools staked by others. NFTs are effectively money laundering schemes mixed with guerrilla marketing consisting of fake collectors, self purchases/self dealing, and more pump and dump scams.
Imagine some senior citizen just trying to pay rent, buy groceries and pay for meds fiddling with the most user friendly centralized wallets much less managing their own private key and setting gas. They fact is there are whales and they are sophisticated persons/organizations (if not live neural nets/bots trading on their behalf with unlimited capital and liquidity seeking to scrap profits by manipulating the prices) they certainly aren’t the unbanked which is another bs marketing scheme of the technology.
At some point it has to become obvious that there is no new opportunity for the non-technical, relatively powerless person. They are the food for the already powerful in this situation, as things currently stand. I know people in exactly this situation: older musicians and sound engineers on a discussion forum who clearly aren't up to speed on the mechanics of how all this works. The only redeeming factor I can see is that they're into POS instead of POW crypto, but they seem to have little idea of how fees and things work, and they're elderly musicians who're on the whole already not wealthy, and crypto is gonna take the last thousand dollars from some of these guys and leave 'em destitute.
When you talk about putting these sorts of things into the reach of the non-technically savvy, it seems we are generally NOT also talking about not predating upon them savagely. Instead we get Facebook and the like: we get mechanisms to consume those people, that being the point. Not great.
I think that's a very important point. Contrast cryptocurrencies to free software. The free software activists intended to give every user more power, to let anyone modify and share the software they use.
But crypto is different. Instead of empowering everybody, it replaces one concentration of power (old money and fed) with another (new money and whales). So naturally, the arguments in favor are increasingly of the type "this will be good for me": support crypto so that you, too, can carve out your part. Or don't and "have fun being poor" (i.e. left out of the concentration of power).
If crypto were about empowering everybody, it would consider pump-and-dumps in particular and preferential attachment in general to be bugs, not features. But it doesn't, not as long as number go up.
It doesn't have a hard cap, but it does have a cap on inflation: 5 billion every year (current reserve is about 128 billion). The inflation rate is less than 5% and going down every year, much lower than most fiat currencies. (Not related to why it shoots so high these days).
Meanwhile the FED heroically partakes in piling on debt for the futures generations.
What dictator wouldn't absolutely love that kind of power?
But you normal fiat is already digital and tracked and in most cases the gov has or could gain access to that data. This however is not the goal of such a "govcoin". CBDCs is to remove clearing (settlement) and make it real-time.
Settlements can already be real time with RTGS systems (real time gross settlements) but
1. Not all central banks have that
2. Not every country has a central bank and not every central bank has an account with the central bank of central banks (BIS)
3. Even then, not every bank has an account with your central bank
A CBDC is a thus a more modern protocol that is easier to integrate (and that has nothing to do with cryptocurrencies) and a more secure system where no single point of failure exists due to some degree of decentralization (that’s the part inspired by cryptocurrencies).
Digital currencies promise a future where the government has immediate, perfectly ubiquitous veto power over every transaction, and can adjust interest rates at an individual level.
This is a new level of reaching out and ruining lives.
Which..... seems fine? As long as companies can build products on top of this system, and as long as people can diversify across various types of e-dollars and the existing set of securities, it sounds pretty good.
And for the parts of the world where few people have bank accounts, it sounds like an obvious big win.
It does not solve the debasement problem though. Only a unified currency like Bitcoin can offer that.
Globalization will push for a unified currency one day. The internet has no borders and trade neither. Currency conversion and debasement is suboptimal and a constraint that will eventually get removed.
As for the Fed and US, I believe they will continue to nurture fintech and start to open up to crypto companies with an end goal of keeping their currency as the global reserve as long as possible. They see the value of the private sector. There will be a transformation of the banking system and they want in.
This really would crash the utility of transfer apps like Venmo to zero.
Instead of choosing a bank, most people would be looking for access to the widest network of broker ATMs.
We could solve this stuff with very centralized postal banking also, so the crypto part ultimately isn't super interesting for me unless it solves some scale problem relating to speed of settlement, costs and/or allowing untrusted middlemen.
...so you're basically sending digital money around. Barely different from me sending you money on paypal.
Yeah they can do this but unlike actual crypto it doesn't seem like news. Nor will it fix the problems currently being experienced in the economy
Over last month or so there's been a flurry of these articles in Economist, Bloomberg. Economist's current weekly edition's[1] focus is CBDC. I get a feeling that through these media outlets policy makers are sensitizing people to an impending launch sometime around 2024.
China was going full steam ahead with different phases of public trials since at least as early as March 2020. China has announced they plan to public launch it next year's winter Olympics. It was largely ignored by the western media. I guess now that they see Chinese launch as being a success the West will want get on the bandwagon.
Most of what the article talks about seems much more related to having a central bank provide retail banking services and modernizing our transactiok settlement network. All of that seems easily doable with creating a serparate currency.
The concerns listed also don't seem new. Worried about people buying foriegn currency and tanking the value of the local currency? So is Argentina and that has nothing to do with any digital currency.
https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_...
I believe they missed the core reason for crypto-currency initial traction.
After the 2008 govt-bank bailout orgy, people lost trust in both banks and governments.
There are other reasons too, sanctions that restrict individuals from doing business with people in other countries.
Economy not burning enough money... okay! 20% of everyone’s money will expire in 3 weeks, if they don’t mean the usage quota. Savings too high? Poof! their gone.
The only money I want is money I can hold.
I'm all for decentralized systems and not having to trust a central authority in most regards. I think that technologies that allow distributed, uncensorable, untamperable communication, for example, are great. I, too, desire decentralized means of conducting monetary transactions. But I cannot for the life of me fathom why people also wanna throw out centralized government control of the money supply with the bathwater in this way. To me, it seems to be a good for most people when a competent central bank in a well-functioning democracy can regulate money supply in order to keep inflation present and moderate. Why would we want to give that up? Taking the hands off the leavers of money supply seems like a disaster waiting to happen: no more increased money supply to help weather crises, no more increased money supply to stave of the horrors of deflation, no more constricting money supply to cool inflation. No tools to combat whole damn currencies turning into investment objects. Sure, with it you get decentralized transactions, but it just doesn't seem worth it to me. Is an embrace of Bitcoin-like cryptocurencies not just a return to a barter economy? A digital, decentralized such, but a barter economy nonetheless?
These "govcoin" systems seem a lot more attractive to me. Sure, they're not perfect, but they do leave central banks with the aforementioned control and offer some levels of decentralization.
I found the Swiss National Bank's writeup on the GNU Taler cryptocurrency very very interesting and promising: https://www.snb.ch/en/mmr/papers/id/working_paper_2021_03
If money is supposed to work like everything else in the universe, it should expand and contract. Hardly any politician or government every had the heart to let contraction happen, so outsized balloons of financial instruments grow, and then burst in an outsized bust. I think that's the argument for a money without political control.
The idea is that political control can only buy time, or is sort of an illusion anyway.
Consider that convertability to bullion or the mathematical algorithms of cryptos are attempts to achieve this same goal, in a way. So it's not new. Many users of a currency want this propertiy, or maybe more specifically, the lenders. Borrowers have to accept these terms. Unless the borrower has a lot of power, like a government, and can consequently change the rules.
I don't understand this statement at all. There's plenty of things we don't demand this of. Are we upset that people work towards only expanding, not contracting, say innovation or productivity or intelligence or life expectancy?
> Hardly any politician or government every had the heart to let contraction happen, so outsized balloons of financial instruments grow, and then burst in an outsized bust. I think that's the argument for a money without political control.
Well, let's fix that then. The perhaps suboptimal wielding of a tool doesn't mean that the tool should go away.
> The idea is that political control can only buy time, or is sort of an illusion anyway.
?
> Consider that convertability to bullion or the mathematical algorithms of cryptos are attempts to achieve this same goal, in a way.
Absolutely. And almost all economists agree that the gold standard is a bad idea. Bitcoin-like cryptocurrencies inherit all those problems.
> So it's not new. Many users of a currency want this propertiy, or maybe more specifically, the lenders.
Yeah. But most people are not lenders. This is why I'm doubly puzzled by the push for Bitcoin-like cryptocurrencies as some kind of empowerment of "the little man". Surely the elimination of moderate inflation benefits only the capital holders, not the little man?
These are complex questions, and we're not going to settle them here conclusively. These discussions have been raging for hundreds of years. I was just offering a perspective wrt one of your questions.
I don't think inflation is a good thing in any capacity. Inflation is a redistribution of wealth away from savers to receivers of freshly printed money. Inflation also encourages mindless consumption as currency holders know that they have to buy something, anything in order to escape the destruction of their savings. This is much more common is countries like Brazil, but the same principle applies to every country. Furthermore, I don't like that essentially a few people (central bankers) ultimately decide where new money goes. Corruption in the US is less-obvious, but in countries like Lebanon, Turkey, Venezuela, Egypt, etc. the central bank is quite clearly redirecting new money to favored, politically-collected people and firms. This is straight up theft from their citizens.
Many people say that even moderate inflation is fine, as savers can receive interest that cover the inflation. It's been years since that has been true, and in many countries they actually receive negative-interest for the "privilege" of saving money, which makes that argument untenable. Another argument is that savers can instead find yield to beat inflation by investing. I don't think forcing people to become mini-hedge fund managers, inflating asset bubbles, and encouraging malinvestment in firms because there are no other places to put money is a healthy thing.
Inflation-oriented fiat currencies reward debtors. The smartest play is to have no savings and be in as much debt as you can, as inflation eats away at what you owe and you can typically own some sort of asset in return for that debt. Morally speaking I dislike the concept of a debtor-society like we have in all countries.
Fiat regimes encourage every firm to become banks. Car dealerships aren't in the business of selling cars - they are in the business of making loans. Retailers aren't selling clothes - they are selling credit cards, and the clothes are the loss-leader to get people in front of the credit card seller. Ultimately the natural progression in the fiat system is to take whatever it is you are selling and convert into a loan shark so you can make interest above inflation. That is the highest-value service you can provide in the fiat monetary system.
You said "horrors" of deflation. It is interesting that all computer equipment and services have fallen in price drastically, year after year, since the computer revolution began. There is no other way to describe this except "deflation" in prices of computers, yet this is not a horror and instead people love that prices continue to fall.
People will always need food, shelter, and medical services. I believe they will continue to desire education, entertainment, and all manner of other goods and services and this will not stop in a deflationary monetary system. What I like about deflation is that firms are encouraged to constantly improve their offerings to convince people to part with their money, as savings are rewarded over consumption. It also makes salaries default-drop to match deflation, rather than default-increase which rarely happens in time to match the inflation rate and cost-of-living increases in the current system. I like a system where firms are forced to constantly improve their offerings rather than make them shittier as we do in the fiat system, i.e. shaving ounces out of the shampoo bottles, replacing high-quality ingredients with inferior ones, etc. in order to compete.
In a hard-money deflationary world, equity would flourish and become as advanced as we currently are with loans and debt. As any loan would have to have very tiny interest (perhaps negative interest) to match deflation and entice borrowing, so equity would become much more common as a financing instrument and also align lenders far more closely with those they give money to.
Finally, I dislike how the government's ability to print money enables them to fund programs I dislike, especially the foreign war machine, without making their citizens pay for it. In a hard-money system where governments actually had to raise all the funds from their citizens in order to pay for what the politicians want would IMO drastically reduce the size and scale of government. If citizens actually had to pay for foreign wars, they would not last anywhere near as long. This is a major benefit of a hard-money, "cannot print money out of thin air" system.
I hope this gives you a brief explanation of my (obviously minority) perspective and why I dislike central banks and fiat currencies.
For the record, I also consider myself to hold heterodox views much of the time. Just not on this topic.
> I don't think inflation is a good thing in any capacity. Inflation is a redistribution of wealth away from savers to receivers of freshly printed money.
Sure. But most of savings are held by the very few. So giving up inflation is a boon to the holders of capital. That's a fair enough opinion to hold, but I don't understand why so many ordinary people with little or no capital (probably more debt than assets) champion this.
> Inflation also encourages mindless consumption as currency holders know that they have to buy something, anything in order to escape the destruction of their savings.
I agree. But by disincentivicing spending on harmful things (i.e. by properly factoring in negative common externalities like environmental destruction, GHG emissions, etc.), that spending may not be a problem. That spending may in fact be the livelihood of others.
> This is much more common is countries like Brazil, but the same principle applies to every country. Furthermore, I don't like that essentially a few people (central bankers) ultimately decide where new money goes. Corruption in the US is less-obvious, but in countries like Lebanon, Turkey, Venezuela, Egypt, etc. the central bank is quite clearly redirecting new money to favored, politically-collected people and firms. This is straight up theft from their citizens.
I should have been clearer: I fully understand why citizens of failed (or failed-adjacent) states want to shy away from central bank control. My comment was meant to be about well-functioning liberal democracies.
> Many people say that even moderate inflation is fine, as savers can receive interest that cover the inflation.
I don't think that's an argument many people are making, is it? I'd say that moderate inflation is fine because it discourages hoarding (or "saving", as you put it). Not because interests on hoarding/savings outpace it.
> Fiat regimes encourage every firm to become banks. Car dealerships aren't in the business of selling cars - they are in the business of making loans. Retailers aren't selling clothes - they are selling credit cards, and the clothes are the loss-leader to get people in front of the credit card seller.
This seems like a wholly American perspective. I've never heard of anyone in Europe buying clothes on credit.
> You said "horrors" of deflation. It is interesting that all computer equipment and services have fallen in price drastically, year after year, since the computer revolution began. There is no other way to describe this except "deflation" in prices of computers, yet this is not a horror and instead people love that prices continue to fall.
Yes, but I'm also not arguing for a government-regulated supply of computer equipment or other goods. I'm considering currencies as something very separate from ordinary items. Moreover, the falling prices in computer equipment come not from deflation, but from vastly improved production methods. This is A Good Thing.
> People will always need food, shelter, and medical services. I believe they will continue to desire education, entertainment, and all manner of other goods and services and this will not stop in a deflationary monetary system. What I like about deflation is that firms are encouraged to constantly improve their offerings to convince people to part with their money, as savings are rewarded over consumption. It also makes salaries default-drop to match deflation, rather than default-increase which rarely happens in time to match the inflation rate and cost-of-living increases in the current system. I like a system where firms are forced to constantly improve their offerings rather than make them shittier as we do in the fiat system, i.e. shaving ounces out of the shampoo bottles, replacing high-quality ingredients with inferior ones, etc. in order to compete.
Perhaps. But consider the incredibly power of the haves in this system. In this system, currency is the most valuable good. What happens when the few are hoarding most of it?
> In a hard-money deflationary world, equity would flourish and become as advanced as we currently are with loans and debt. As any loan would have to have very tiny interest (perhaps negative interest) to match deflation and entice borrowing, so equity would become much more common as a financing instrument and also align lenders far more closely with those they give money to.
To me this sounds like a recipe for a barter economy. "I'll pay you 0.1% of my house and 1000 apples for that car".
> Finally, I dislike how the government's ability to print money enables them to fund programs I dislike, especially the foreign war machine, without making their citizens pay for it.
Again, assuming a well-functioning liberal democracy: you have mechanisms to remedy that. If they don't work for you, then you're either not living in a well-functioning liberal democracy, or the things you dislike simply aren't disliked by enough people. Tough luck in the latter case. You're not supposed to get your will in that case. In your deflationary currency world, it seems you would get your will depending on how big of a pile of every-more-valuable cash you're sitting on. Seems even more unfair than today's democracies to me.
> In a hard-money system where governments actually had to raise all the funds from their citizens in order to pay for what the politicians want would IMO drastically reduce the size and scale of government. If citizens actually had to pay for foreign wars, they would not last anywhere near as long. This is a major benefit of a hard-money, "cannot print money out of thin air" system.
You use a very loaded thing, war, as the item to be paid for. What about schools, hospitals, infrastructure? Should those always be paid for in full before they go anywhere, too?
> I hope this gives you a brief explanation of my (obviously minority) perspective and why I dislike central banks and fiat currencies.
It does. I appreciate the explanation. But I do fear that what you propose would shift power away from the ordinary person and towards those that have managed to hoard a bag of ever-appreciating money.
If you want to redistribute the wealth from the holders of capital, pass laws to do so directly. Doing it in in a roundabout way via inflation is a psychological trick - you are saying, "Well, laws can't be passed to do it, so we will use this crazy constant-devaluation of everyone's money to accomplish it" and the new money doesn't go to the people you want to help directly. Furthermore, poor people with tiny amounts of savings can't even begin to save as their money is constantly debased. I don't see this as an argument against deflation.
> I should have been clearer: I fully understand why citizens of failed (or failed-adjacent) states want to shy away from central bank control. My comment was meant to be about well-functioning liberal democracies.
It is matters of degree to me. The US has defaulted twice in the last 100 years, first with the confiscation of gold in the 30s and later with the outright withdrawal from the gold standard in the 70s. You can argue whatever you want, but that is a de-facto default when the rules that were promised are suddenly changed at gunpoint, and now past promises are now longer valid. I see the US and other "well-functioning liberal democracies" as easily able to slip into being monetary basket cases, as they have been several times over history. The 1970s/80s had absurd levels of inflation in the US which shows the situation can change rapidly. I think there is a high-risk of 10%+ inflation in the US right now.
> This seems like a wholly American perspective. I've never heard of anyone in Europe buying clothes on credit.
The finance sector in all western democracies is a large component of GDP - far higher than what it would be in a hard-money system IMO. Those closer to the money printer somehow get a larger share of it. Always happens.
> I don't think that's an argument many people are making, is it? I'd say that moderate inflation is fine because it discourages hoarding (or "saving", as you put it). Not because interests on hoarding/savings outpace it.
I don't see why we need to artificially encourage people to spend. People should spend if they want something, not because of seizing their money if they choose not to spend. As I said before, people will always need goods and services. "Hoarding" money is just someone choosing to delay their gratification, which I see as a good thing.
We haven't discussed what a true private sector banking system would look like. There would still be investment in new businesses based on the assets of depositors. They just wouldn't have the guarantee of bailouts, so depositors would be much more careful about who they deposit their money with.
> Moreover, the falling prices in computer equipment come not from deflation, but from vastly improved production methods. This is A Good Thing.
My point is not to say why they deflated. My point is that there was deflation, and it didn't cause any problems. Economists act like the sky will fall if deflation occurs. It happened in computers and it was awesome.
> To me this sounds like a recipe for a barter economy. "I'll pay you 0.1% of my house and 1000 apples for that car".
I'm speaking more about large corporate financing. Right now, corporations issue junk bonds that barely pay above inflation and the central bank prints new money to buy them. It's absurd! The fed is backstopping private business. This integration of big business and the state makes it harder for smaller businesses that can't get cheap credit to compete. We are in a too-big-to-fail situation for our private sector!
> You use a very loaded thing, war, as the item to be paid for. What about schools, hospitals, infrastructure? Should those always be paid for in full before they go anywhere, too?
Yes? Why should citizens-of-the-future pay for what citizens-of-the-now want? Actually paying for things would cause an honest discussion of what people are willing to pay for. If you tell people they can have everything they want for free, of course they want it. This is the weakest argument of all.
> It does. I appreciate the explanation. But I do fear that what you propose would shift power away from the ordinary person and towards those that have managed to hoard a bag of ever-appreciating money.
You act is if the rich don't accumulate capital now. I find this argument invalid. In reality it's the poor that can't easily escape inflation and lose their money, while the rich are able to continue to accumulate wealth above the rate of inflation using their vast array of wealth advisors and tax lawyers. The poor are the ones without an easy way to protect their wealth in an inflationary world.
I wouldn't call it a "psychological trick". Nobody is tricking anyone, if steady and moderate inflation is the goal of a competent central bank.
> Furthermore, poor people with tiny amounts of savings can't even begin to save as their money is constantly debased. I don't see this as an argument against deflation.
But they can take on ever-debased debt!
> It is matters of degree to me. The US has defaulted twice in the last 100 years, first with the confiscation of gold in the 30s and later with the outright withdrawal from the gold standard in the 70s. You can argue whatever you want, but that is a de-facto default when the rules that were promised are suddenly changed at gunpoint, and now past promises are now longer valid. I see the US and other "well-functioning liberal democracies" as easily able to slip into being monetary basket cases, as they have been several times over history. The 1970s/80s had absurd levels of inflation in the US which shows the situation can change rapidly. I think there is a high-risk of 10%+ inflation in the US right now.
I'm not entirely sure I'd call the US a well-functioning liberal democracy, but I'd definitely not call withdrawing from the gold standard defaulting. Besides, isn't inflation-targeting at central banks a relatively new invention?
And let's be entirely clear: if most experts saw a high risk for imminent 10%+ inflation, they would be given a very very loud microphone. Your view is a fringe one.
> The finance sector in all western democracies is a large component of GDP - far higher than what it would be in a hard-money system IMO. Those closer to the money printer somehow get a larger share of it. Always happens.
Along the lines of what you wrote above: let's pass laws to change that then.
> I don't see why we need to artificially encourage people to spend. People should spend if they want something, not because of seizing their money if they choose not to spend. As I said before, people will always need goods and services. "Hoarding" money is just someone choosing to delay their gratification, which I see as a good thing.
That's your personal view. Easy access to money is an important mechanism for people with actual good ideas to realize them. In a society where hoarding is "artificially encouraged" instead (see, both of us can play the game of inserting loaded adverbs or adjectives ;)), this mechanism stops functioning properly.
> My point is not to say why they deflated. My point is that there was deflation, and it didn't cause any problems. Economists act like the sky will fall if deflation occurs. It happened in computers and it was awesome.
Computers are not currency. I want different properties for goods and for currency. I don't think that's a very original desire.
> Yes? Why should citizens-of-the-future pay for what citizens-of-the-now want? Actually paying for things would cause an honest discussion of what people are willing to pay for. If you tell people they can have everything they want for free, of course they want it. This is the weakest argument of all.
Are you doubting the usefulness of debt at all?
> You act is if the rich don't accumulate capital now. I find this argument invalid. In reality it's the poor that can't easily escape inflation and lose their money, while the rich are able to continue to accumulate wealth above the rate of inflation using their vast array of wealth advisors and tax lawyers. The poor are the ones without an easy way to protect their wealth in an inflationary world.
They do, of course. But you're suggesting we use "psychological tricks" to incentivize this behavior!
I certainly share your opinion that something needs to be done about the super-wealthy. I think the only viable solution is broad capital taxation agreements between the well-functioning liberal democracies of the world.
Each economic block will have it's own monopoly money, with little distribution beyond block's borders (unlike cash today). For all the failings of "traditional" cryptocurrencies, at least these are available to anyone in the world.
Please stop posting articles without also posting the required workaround (thanks @neonate).
When it comes to communities I suppose too much success brings its own form of failure.
This is just an observation of downvotes over the last couple of months for what was once normal commentary, observations or stating facts.
https://news.ycombinator.com/newsguidelines.html
Especially don't do it three times.
An account from April 2020 shouldn't be making trenchant observations about changes in the nature of the community, either. You just got here.
I’d also add that I do not regret it. I’m sure the person that sold me my coin does regret it ;-)
What you might be thinking of is stuff that was invented out of thin air, “instamined” like a ethereum, ripple, or other Proof of Stake coins (bad, for some of the reasons you have outlined). Fair launch, no premine Proof of work coins are as close as you can get to a digital commodity.
Bitcoins are pure speculation. (So I guess if by horses you meant gambling on them, then sure, horses are too pure speculation. But nobody suggests using horse bets as a store of value, while people seriously is suggesting that about bitcoins.)
Cash is King, and Monero is Queen.
To quote Edward Snowden: ”The central property of cash is fungibility—meaning a dollar spent by a plumber is honored equally to one spent by a sex worker: they are indiscriminable. Adversarial chain analysis of Bitcoin's public ledger reduces its fungibility over time. Only privacy guarantees fungibility.”