Ask HN: Why do we need central bank digital currency (CBDC)? | Hacker News Reader

Ask HN: Why do we need central bank digital currency (CBDC)?

39 pointskamroot109 comments

Many countries', including the United States, central banks are trying to figure out Central Bank Digital Currency (CDBC). This move has accelerated after China introduced its digital currency (e-CNY).

But why do we need a digital currency when most of my transactions (presumably true for most people in a modern economy) is digital? I receive my salary via a bank transfer, make payments in grocery stores via credit cards, deposit checks via my phone by taking pictures of them, and split restaurant bills via Zelle. All that is digital - no cash is involved. Explain to me like I am 5 - What problem does a digital currency solve that is not solved by electronic (digital) transfer mechanisms of existing fiat money?

Links - US Federal Reserve working paper on CDBC https://www.federalreserve.gov/central-bank-digital-currency.htm - European Central Bank on digital currency https://www.ecb.europa.eu/paym/digital_euro/html/index.en.html - Details on Chinese e-CNY https://en.wikipedia.org/wiki/Digital_renminbi

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People don't need it, but governments want it very badly. It would provide governments with greater visibility into and control over the money supply and flows. This would be both at the macro (arguably good) and micro (arguably bad) levels.

Just as here on HN we read from time to time about people being locked out of various online services (i.e. Google, Facebook etc.) for doing something a company doesn't like, a CBDC would allow governments the ability to effectively lock people/organizations out of their digital economy.[1] It would also allow for money that expires and can only be used for certain (government approved) purposes. (these both would have been desirable from the government's point of view for COVID stimulus payments, for example)

[1] This can already be done to a degree via the banking system, but a CBDC would provide for much more granular control.

In short, permissioned digital currency is all the bad parts of crypto and none of the good parts, while simultaneously getting rid of all the good parts of cash. There's almost no benefit to the user that something else doesn't do better.

Incorrect. The benefits come from more informed macroeconomic policy, more targeted economic tools, and potential benefits around more targeted and effective sanctions against international bad actors.

The idea is that the benefits to the user are a more stable economy (lower inflation, higher employment), a more effective safety net (politicians more likely to approve payments that can't be spent on gambling), and greater peace (targeted sanctions as an alternative to war).

Whether any/all of these will work effectively is debatable of course, but there are legitimately good reasons to think they would. And no, there's no alternative that does them better, and crypto certainly doesn't. Again, the individual merits can be argued, but the idea that it is "all bad no good" is simply not the case here.

That gives a lot of weight to the idea that officials in the Fed (or your country's central bank) and government will make the best decisions for everyone given increased data produced by a digital currency. History doesn't really show that officials make the right decision even with sufficient data. For a small example, until a few months ago many US Treasury and Fed officials insisted that any inflation would be "transitory" at worst. Now many admit they were wrong, but still argue about the state of the economy given such inflation and whether or not the US is in a recession. On a larger scale, many US officials were blatantly wrong about their conclusions regarding the markets going into the 2008 financial crisis, a few have even admitted as much. Even if we assume officials would only make the "right" decision given the right data, it seems unlikely that a digital currency would give officials sufficient knowledge of many factors for the 2008 crisis, e.g. swaps and other financial instruments used by large banks, and the so-called "shadow banking" system.

I could be wrong, but I don't think many citizens would vote for a policy that would give up so much of their privacy, autonomy, and civil rights for the hope that central banks and government officials will make the right economic decisions next time given the data a digital currency provides.

Central bank policy isn't perfect, because human beings aren't perfect. But it's far, far, far better than having no policy at all -- economies used to follow crazy harmful cycles of booms and busts, bank runs, runaway inflation, and so forth. It's easy to take for granted how effective central bank policy is because many of us haven't experienced the lack of it at home in our lifetimes.

The central bank doesn't have a crystal ball to know with certainty where inflation will go. Much of that depends on historical events outside the US that are by definition unknowable -- how will food and energy prices be affected by war in Ukraine, for example?

But central banks are able to plan and then adapt appropriately as circumstances change. And citizens have long voted for effective central bank policy -- economic fears about inflation and recession are reliably the #1 popular concern. If a digital currency can help this, most voters will be very happy with it. After all, for people (like myself) who already make 99% of their purchases with credit cards, they're not giving up much.

You may be confusing USA Congressional fiscal policy with central bank monetary policy. Federal Reserve (private contractor with no federal government employees) could spend more resources on regulating banks instead of bailing out banks via purchases of bank's underperforming debts.

I don't believe that having more data will lead to worse decisions. I could be wrong, but I believe the vast majority of the population doesn't care about privacy and is willing to sacrifice marginally more than nothing to keep it.

>For a small example, until a few months ago many US Treasury and Fed officials insisted that any inflation would be "transitory" at worst. Now many admit they were wrong,

That government officials are fallible and incompetent is (in my opinion) the weaker argument. Even if they were extremely competent and had a crystal ball that predicted the future (they don't), nobody should trust the intentions or the goals of government agencies with such ubiquitous and unchecked power.

> more effective safety net (... payments that can't be spent on gambling)

> there's no alternative that does them better

State-run EBT cards exist and seem to be working OK.

Federalizing more things reduces people's ability to usefully vote with their feet by moving to a different State when people don't agree with State government policies.

> more stable economy (lower inflation, higher employment)

Speculative and seems unlikely. Do you have examples where a CBDC helps pay for projects better than the existing payment rails?

One might as well discuss the user-benefits of nerve stapling.

>but there are legitimately good reasons to think they would.

There is no good reason for the government to have complete control over all of your finances and purchasing decisions on a granular level (if you value human freedom, autonomy and dignity at all).

Totally upside down and backwards.

Crypto is all the bad parts of a CBDC and none of the good parts. A CBDC will eliminate any argument for crypto ... with the exception of paranoia ... which is unfounded since crypto keeps a public record of everything you do.

>A CBDC will eliminate any argument for crypto

So a US CBDC will be decentralized, permissionless, transparent, non-censoring, and run on open-source software based on an open specification?

No, it will a be a stable currency that people actually use without even thinking about it to make instant money transfers at zero cost.

Because stable currencies do not exist in the world of cryptos? Dai [1], Rai [2], and USDC [3] are some examples that are all stable, and all dramatically different from each other.

Fees are currently as low as $0.03 on Ethereum layer-2 solutions (!= side-chain) [4]. The fees will further fall as the technology improves, and once L1 gets (data-/dank-)sharding and other L2-scaling oriented upgrades.

[1] https://makerdao.com/en [2] https://reflexer.finance [3] https://www.circle.com/en/usdc [4] https://l2fees.info

Fees are currently as low as $0.03 on Ethereum layer-2 solutions

Fees in crypto fantasy land are irrelevant to most people.

How much does it cost to pay your rent or buy food in the real world?

Fiat transactions often carry fees. If you buy a product online or receive revenue from e-commerce the fees are around 2-5% + 50 cents.

Crypto is probably not going to beat domestic interbank dollar transfers for small amounts, these transactions can be regulated down to zero fees like we see in the EU and UK.

Crypto is probably not going to beat domestic interbank dollar transfers for small amounts

Thank you. It's probably not going to beat domestic interbank dollar transfers for ease of use either. With a CBDC, most consumers will only notice new capabilities and faster money transfers --- at zero cost.

Back to the original point: A CBDC will eliminate any argument for crypto --- except for paranoia.

And about paranoia --- imagine the outcry if government decided to store every transaction you ever did in an immutable public database?

There are reasons to use crypto aside from a domestic interbank dollar transfer: trading a digital asset, registering something on a globally shared ledger, international transfers or transfers to non-bank accounts, anonymous cash-like digital transactions, smart contract functionality, to name a few.

Forcing citizens to use a CBDC is straight out of 1984 playbook.

Forcing citizens to use a CBDC is straight out of 1984 playbook.

FUD anyone?

Citizens won't be using a CBDC --- at least not directly. Everything *citizens* do will still be denominated in good ole USD just like always.

The CBDC will be used behind the scenes by banks and the Fed to speed up and modernize the banking system --- to replace the antiquated ACH system that was originally designed in the paper check era.

Basically, a CBDC will allow digital wallet like features to be seamlessly added to every existing US bank account.

Governments are proven oppressors, Every single mass abuse of human rights, war, genocide has been carried out by government. Taking the power of the purse from government is the next big human rights issue of our age, rendering taxation by inflation impossible, and empowering individuals to hold government accountable.

Thank you for saving us from the evil of government. In the meantime, can I pay rent with crypto?

If your landlord decides to accept crypto, sure you could.

So in other words --- not likely --- not without charging you an additional fee.

Your landlord doesn't exist in crypto land either --- and he will quickly grasp the fact that doing business in crypto has real world costs.

permissioned

I think this is the key concept over and above digital. It's the difference between http et al and AOL/Compuserve.

https://permissionlessinnovation.org/what-is-permissionless-...

> This can already be done to a degree via the banking system, but a CBDC would provide for much more granular control.

That's vague. Prove it.

See Russia and SWIFT for the most extreme example to date.

What does that have to do with CBDC?

A CBDC system would radically simplify the current system of intermediaries approving/checking/extracting-fee/etc shifting 0 and 1 from one digital ledger to another [e.g. https://www.bankofcanada.ca/wp-content/uploads/2021/07/sdp20...]. Under CDBC a person has open account only with a single 'independent federal/global bank', making it the only liability to government not a private institution (technically Fed would is private institution, but that is topic on its own).

The abolition of an analogue payment system (cash) is from the first principles a tragic idea regardless of the actual implementation mechanism, despite the few pros one can but forward in this argument. The system with CBDC can make money have an 'expiration date' ! This is not a theoretical construct, but its discussed as a way to 'manage' economy (and private individuals). Inflation, spending, propping up economy is fully in the hands of a government entity and can be matter of coordinating policies and laws. This alone, this principle goes against all the progress of modern times from Babylon. The opportunity for tyranny (not used lightly) under such system is limitless (I will not enumerate it here, Im just outlining an argument on a important and complex issue).

CBDC has nothing to do with abolishing cash. Some tin-foil-hat-wearing conspiracy influencer tied the two together, but they're really wholly unrelated concepts, and it only serves to muddy the waters to try to discuss both when only one was asked about.

Normal bank accounts are on the books of the commercial banks. That requires a deposit insurance scheme to make those deposits "money good". Otherwise you end up being an unwitting investor in the bank and subject to losing some or all of your deposit if the bank lends badly.

A digital currency, at least in the terms generally discussed by central banks at the sharp end, moves your bank account to the books of the central bank, so it is always money good without the need for a deposit insurance system. The commercial bank then operates it as agent rather than principal.

There's some other stuff to do with anonymity and quite a lot of hype about distributed ledgers and the like, but largely that is all just marketing BS. The conflict between Money Laundering/Proceeds of Crime tracking requirements and Privacy laws generally stop bearer tokens in their tracks. Bearer Tokens being the direct electronic equivalent of our current folding stuff.

> Normal bank accounts are on the books of the commercial banks. That requires a deposit insurance scheme to make those deposits "money good". Otherwise you end up being an unwitting investor in the bank and subject to losing some or all of your deposit if the bank lends badly.

> A digital currency, at least in the terms generally discussed by central banks at the sharp end, moves your bank account to the books of the central bank, so it is always money good without the need for a deposit insurance system. The commercial bank then operates it as agent rather than principal.

You can have Fed Accounts[1] without a CBDC.

[1]: https://www.slowboring.com/p/fed-accounts

> That requires a deposit insurance scheme

It doesn't require it, though the existing structure uses this in part to allow banks to take excessive lending risk. It also allows depositors to not care about solvency of the bank.

CBDC removes the overheads of banking as it exists, which always had a foundational premise of limited ability to govern and coordinate directly at large scale. Private banks have all kinds of specific responsibilities and requirements to move and store money, and they extract fees from that.

The basic logic(from the perspective of the government) is that this is a further centralizing of economic power, and therefore adds efficiencies of scale.

The downside of that is basically that it closes off any remaining illusions of privacy from the state in one's financial matters. The banks were already cooperating in the existing framework, this just makes it easier. And really, I think I'm OK with this as a clarifying step. In the bad old days you were basically relying on a system that would get things wrong with no recourse: sometimes banks failed and you lost your deposit. If you actually wanted to maintain economic privacy under that system you were at the mercy of the bureaucracy, and if you wanted specifically to evade the law and taxation you would have to set up a semblance of alibi(thus laundering etc.)

The whole sphere of crypto/privacy coins doesn't really enter into this in any direct way, since the premise of those is to suggest economic ideas outside of the model of the nation state, which is actually different from a "for or against" position as is often imagined: it's just a different kind of economic technology for account and settlement, one that prioritizes keeping a consensus secure over installing a speedy arbiter.

Crypto is relevant because a transaction can not be censored, nor my coins arbitrarily seized.

I think the answer is in your question: All forms of money you currently use online (bank-transfer, Zelle, credit card, etc.) are owned and operated by private entities. None of them are public money like cash is, backed by the central bank.

CBDC is intended to be a digital equivalent of cash, so that people have a public money option for digital purchases. It could mean anything from everyone having an account at the central bank to a card holding value that you can get from someone and tap to your phone to order an Uber.

Well it depends. Certainly eveybody having accounts at the central bank is one way to do things. They could also do something more akin to cryptocurrency, rather than traditional accounts. Honestly I half expect that.

There has also been talk of this being an offering of retail banks in the US. In order to be truly cash-like these would be quite different from normal bank accounts. Under this approach these accounts would not be eligible for many normal banking services, because people who the banks would not normally deal with (due to terrible credit, or previous bank fraud) would need to be able to get an account. Currently the banking system actually extends credit to most people with normal accounts, since people expect to be able to the money transferred to them in a reasonable amount of time, rather than needing to wait for a transaction to become non-reversal which can take a really long time.

To be truly cash-like There would need to be a rapid non-reversible transaction mechanism. If transactions could be reversed for things like fraud, then it is not really cash-like, but more like one of the various forms of traditional banking. But of course, this makes it riskier for most consumers, to the point where organizations would be discouraging people from using it if they have any choice. If you have recently tried to do a wire transfer as an individual (perhaps as part of buying a house) both the bank and the receiving party make you jump through hoops, and want you to triple verify the number, and the bank will probably ask you to explain the transaction. Largely all of this is to protect you, as there are plenty of scammers who will send fake account numbers, plus plenty of headaches that can occur if the account numbers are off by even one digit.

And wire transfers are not actually fully non-reversible! Admittedly, banks will be reluctant to even try to reverse them unless: the bank messed up (sent the wrong amount, entered a different number than you told them, etc), the receiving party confirms the reversal (like might happen if an honest person receives a wire meant for someone else, Letting the initiating bank reverse it is safer than sending it back), or you can demonstrate that you did not authorize the transfer in the first place.

And this is not even considering the privacy concerns, since unlike paying by cash, law enforcement will likely be able to trace any transactions done with the CBDC, much like it is possible for them to trace credit card transactions. After all, I strongly doubt any such current will have the privacy protections of something like monero, even if it is crypto based.

> like cash is, backed by the central bank.

In USA, dollars are not backed by central bank. Dollars are backed by the federal government.

The short answer is we don't. The main issue we have now is that all the transfer mechanism are private and rent seeking. Most of the world has instant peer-to-peer digital transfer of money that is immediately in your bank. The FedNow is one upcoming program to end around the private interests.

People also seem to forget that banks do serve several key purposes (in addition to their anti-consumer and rent-seeking behaviors) that I don't think any central bank wants to be in the business of dealing with.

I don't think the US needs a CBDC. Availability at the retail level will suck deposits out of the commercial banking system. The Fed has some FOMO but I anticipate any CBDC to be more of a settlement tool than something like e-cny.

For me that would be an effective way to target government money to people that really need it. Another comment pointed the expiring money, specialized money, etc as a distopia future but this is only if we let it become that IMHO.

There is also a utopia side to that coin where money like UBI can be easily distributed to all but can only be used to buy necessities like food, shelters, etc but cannot be used to buy stocks and prop up a bubble in the stock market like a lot of the stimulus checks were during the pandemic. One could also easily target programmable money toward low income people without needing to wait a tax statement or having to double check at the end of the year.

Programmable money is a really powerful concept and I do think it is inevitable that we will come to it at some point since it lowers of the cost of implenting economic policies and increases the speed at which they are deployed. But we do need to make sure enough laws are on the book to prevent authoritarian use. In a stable and alive democracy that should not be too much of an issue, but elsewhere...

India fixed this problem with “direct benefit transfer” straight to bank accounts. And this was before the current UPI system had really taken off.

Really, if a country of 1.4 billion people where beneficiaries can number more than the populations of most countries, I don’t see why you would need CBDCs at all.

I would argue that yes it can be done outside of a platform like this, but each time you want to implement a new policy you need to talk to all private actors and force them to implement your policy.

With programmable money (think ETH smart contracts for the government) a policy could be roll out to the entire population uniformly in a matter of days.

This is why this concept is so powerful and is inevitable IMHO.

> I would argue that yes it can be done outside of a platform like this, but each time you want to implement a new policy you need to talk to all private actors and force them to implement your policy.

And you know what, many jurisdictions have done exactly that, and brought massive improvements to their banking infrastructure in the last decades. Private actors either comply or lose their banking/credit/payment licenses, it's as simple as that.

Ho I do not disagree but coming from Canada where we have been talking about open banking for the past 10 years without any progress I will take a smart contract any day over the big 5 banks that we have today.

The question is not if it can be done outside of the platform, it is how much time it takes. I would encourage you to try to code a smart contract even if you dont like the concept, it is eye opening.

The fact that would have a standardized VM for money where you can write small programs to implement your law is just another level frlm what we have.

So you don't trust your government to come up with the right legal framework... but you want the central bank to take over the entire retail banking sector?

The flip side of the argument is that it can also be easily weaponized and used to financially cut off “undesirables”. Throw in some digital identity, some secretive “social scores”, and you can have a situation that gives governments overwhelming power over individuals and their rights.

Let’s not pretend that our governments are above abusing such power.

programmable money is a good thing. Permissioned programmable money is a bad thing.

I don't think you can separate the two honestly. As soon as you have a smart contract for something you can make it permissioned. Only human laws outside of tech could prevent that so I am guessing each country will be different.

Government can track all money and its flows better. Can give directly to citizens without needing banks as middlemen. Can give money that “expires” - must be spent quickly to goose the economy and disappears if someone tries to save it. Can completely lock a person out of the economic system if the government doesn’t like them.

The Economist just did an article about China's e-CNY. Not a straightforward answer to your question, but hopefully you'll extract some insight.

https://www.economist.com/finance-and-economics/2022/09/05/t...

https://web.archive.org/web/20220909015725/https://www.econo...

India's UPI system manages tens of billions of transactions without CBDCs. Pretty much proof that any potential benefits of CBDCs can already be achieved with existing systems.

This is the piece that complicates my thinking about CDBC and digital transfer systems. What UPI does is seamless and instant transfer of Indian Rupees between parties and it is widely adopted. So why would India need, or benefit from additional CDBC? I can see how CDBC's instant transfer scheme would benefit the US which does not have digital transfer systems that are both instant and close to zero-cost.

So why would India need, or benefit from additional CDBC?

What makes the UPI system work *is* effectively a CBDC. It's not possible to have instant transfer without *something* that functions like a CBDC --- though it may be named something else. The EU calls theirs a "credit transfer scheme" --- same difference.

The word that seems to be confusing people is the word *currency*.

A CBDC will be used by *banks* to benefit consumers but it is not something that consumers will consciously partake of. Consumers won't carry CBDC in their pocket or in a special digital wallet.

One way to look at it is that a CBDC would be used to add the functionality of digital wallet to everyone's existing bank account.

Like you are five: The main driver inevitably boils down to governments wanting you cashless and using instead a currency that provides absolute observability (hence potential for further control) of your economic activity. The political class cannot resist the temptation to use that to mine resources and obedience out of everyone.

That's why China implemented it first as the chinese communist party keeps the country under relative economic freedom with absolute population behavioral control.

Corollary?

Our societies in this other side of the world aren't supposed to be vulnerable to such totalitarian measures, but are suffering a sort of contagion of that very same driver, but implemented slowly and in a more covert way. Got accelerated and more overt lately and it will be more towards the self-evident status.

One goal of e-CNY is to be an alternative to USD payment systems like SWIFT which the Western governments hve used to enforced sanctions.

China has a problem with the regular currency has a lot of restrictions on it. People can't just trade CNY for USD or something else because there are controls to prevent this. China wants e-CNY to be a platform for Chinese trade also third parties outside the USD umbrella, eg Brazil with Nigeria or Venezuela trading with Iran. I dont honestly know how that is possible to do both CNY with restrictions and e-CNY which is open, but its definitely important to China and much of the world. https://www.scmp.com/economy/global-economy/article/3191393/...

Naively, they could allow e-CNY to be exchanged for CNY but not the other way around, or am I missing something?

Practically, it will make little or no difference to you.

Currently, central banks manage money supply by managing currency transfers to commercial banks and via managing the amount of cash in circulation. The commercial bank transfers are (almost) all digital. Cash, obviously, isn't.

There is reasonable reason to assume that cash will become less and less prevalent as digital payment flows become more ingrained. So central banks are looking at mechanisms to replace/supplement their retail money supply mechanism ie cash, with one that makes more sense for a more digital economy.

So, many central banks have been exploring digit fiat currencies, how they could be implemented, implications etc.

> Practically, it will make little or no difference to you.

So when the fed reserve decides inflation is too high because they printed too much money and kept interest rates low- instead of trying to "soften the labor market"/drive unemployment up and more people into poverty - with a digital currency, they can simply zap your money away. No need for financial "austerity" for the poor's to endure. What could go wrong?

This doesn't get to the social credit scores we see in use in China, and how a solely digital currency lends power to that system. We are already doing it to the market with ESG scores, wait til you have an ESG score for your personal life.

But I'm just a guy that thinks that the federal reserve just needs to be abolished. It's just a clever mechanism to ensure that monetary system doesn't let the wealth spread out too much. It's all done through cycles of recessions and booms, where they take wealth from the pockets of poor people and hand it to the ultra wealthy to consolidate more assets.

> with a digital currency, they can simply zap your money away.

Brazil did that in the 90s, digital currency wasn't needed.

Yes, but with an open, global system like bitcoin, they can't do this any longer.

Central banks kept printing money despite the existence of blockchains. There is an ongoing global inflation crisis as result.

It seems no Blockchain was able to overcome fundamental scalability issues, which are key to actual adoption.

> So when the fed reserve decides inflation is too high ...

Nothing stops them doing that with cash ie stopping extant currency being legal. Just happens that the US has never done that (to my knowledge). Other countries do it fairly regularly though.

I won't address your other points as they have nothing to do with digital currencies.

> "wait til you have an ESG score for your personal life"

How exactly do you suggest the 'G' part would work? It's short for "corporate governance" you know.

I get the feeling you're getting these bizarre talking points from some right-wing echo chamber where they're coming up with a new scary acronym panic on a regular basis. "Watch out, the ESG will CRT you into the NWO!"

Did I need to spell out more explicitly the connection between social credit scores and China implements them and ESG scores that have been brought to the rest of the world, and that maybe having digital, government managed currencies will allow our own western governments to follow the China experiment?

Thanks for nitpicking a loose use of the term ESG, and then dismissing everything else with the categorical label of right wing echo chamber nonsense.

I didn't get these ideas from a far right echo chamber either. The following paper comes from an advocate of banning cryptocurrency, and replacing it with federal coins, that can then manage monetary policy way more precisely than the current system we have. Part of that policy would be the ability to literally reduce people's ledgers as a form of inflation control. Oh, and the author was going to be tapped as a wall street regulator, but barely missed confirmation. While she didn't make the cut, seems like her ideas did.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3715735

It's not nitpicking when you're using the term in a completely inapplicable, absurd sense.

A framework used to evaluate corporate investment candidates has nothing to do with social credit score boogaboos. It makes as much sense as saying: "Soon Big Government will be assigning buy/hold/sell ratings to you!"

It's absolutely nitpicking. The "G" just stands for governance, otherwise it'd be a "C". On an individual level that could mean paying taxes on time, maintaining employment, etc.

> A framework used to evaluate corporate investment candidates has nothing to do with social credit score boogaboos.

Functionally, ESG _already is_ a social credit score for companies and a tool for compliance. Do you think companies are taking ESG measures because they want to?

> ”The "G" just stands for governance, otherwise it'd be a "C". On an individual level that could mean paying taxes on time, maintaining employment, etc.”

That’s not at all what governance means in the corporate context.

So you’re basically saying that ESG can be applied to individuals as long as you redefine it to something completely else.

As far as companies getting rated, well duh, there’s a giant industry around that. Companies don’t have civil liberties and they don’t have the right to receive investments from anyone who doesn’t choose to invest.

> So you’re basically saying that ESG can be applied to individuals as long as you redefine it to something completely else.

There are 802 million Google results for "personal governance". I'm not redefining anything.

> Companies don’t have civil liberties and they don’t have the right to receive investments from anyone who doesn’t choose to invest.

When the investment (or not) comes through trillion dollar asset managers by way of the Fed, it looks a lot more coercive.

Explain to me like I am 5 - What problem does a digital currency solve that is not solved by electronic (digital) transfer mechanisms of existing fiat money?

Examples: 1: Stable cash flow (why they want a stable coin --> to monotitor for policy) 2: future projections of the economy (finance needs backing --> data is key) 3: credit scores of people 4: long term investments 5: organisations need finance in good and bad times, otherwise it is survival of the fittest but that is not what society is about.

Without a CDBC the government and the central bank have a harder time tracking everything you do and controlling/authorizing/preventing how you spend your own hard-earned money.

https://emmer.house.gov/2022/1/emmer-introduces-legislation-...

“Not only would this CBDC model centralize Americans’ financial information, leaving it vulnerable to attack, but it could also be used as a surveillance tool that Americans should never tolerate from their own government.”

I don't understand how CBDC would do either. I was under the impression that a CBDC would be an instant interbank transfer mechanism, so it would be replacing ACH, not bank accounts or cash. If that's correct, then a CBDC would give the government exactly the same visibility into money flow and financial information as it currently has, given that the Fed runs ACH and the central banking system.

(I have not read the specs so you should verify) My impression is that you no longer need a bank account. That is one of the selling points for addressing access to money for those who don't/can't have bank accounts.

An idea: Smart contracts for derivatives. Nowadays a lot of OTC derivatives are collateralised between parties. Collateral payments depend on each party’s valuation which might differ and may come late. You could program the valuation and transfer of the collateral.

Whether a regular person can get an CBDC wallet is another (orthogonal) question. It’s equivalent to whether regular people can open an account at the central bank, even without CBDC.

> But why do we need a digital currency when most of my transactions (presumably true for most people in a modern economy) is digital?

Your transactions seem to be digital, but there are actually many complex systems and institutions involved to guarantee they're backed by real stuff that's actually worth something.

Digital currencies are all about removing this complexity.

CBDC will never catch on. It's worse than the existing system for everyone involved. This is just clueless bureaucrats trying to show how cool they are. Not to mention corporations trying to extract more money from the government by providing CBDC services.

If everything was fine, businesses wouldn't often demand cash.

The cost of using a credit card is fees, and similarly splitting your bill with Paypal or Zelle means you are paying those firms. It would obviously be a boon to get rid of all those transaction costs somehow.

Explain to me like I am 5

Out of sight, out of mind. You don't see it but private transaction processors (Visa and Mastercard) consume up to 3% of the transaction amount. Over the course of a year, this amounts to $50 billion removed from the economy. The merchant pays this --- and passes the cost along to you in terms of higher prices.

The money transfer system that deposits your check is old and slow and involves human labor. Unless you pay additional fees (banks love fees), it takes at least 24 hours for the deposit to be made and the system only operates during "banker hours" --- 8-5 on weekdays; no weekends, holidays or nights.

A CDBC will be fully electronic/automated with instant results and operate 24/7/365 at insignificant cost. Basically, it will speed up and put billions of dollars back into the economy.

Despite all the doomsday misinformation, no one has suggested replacing cash or checks. And no, crypto is no substitute for what a CBDC will do.

> Out of sight, out of mind. You don't see it but Visa and Mastercard consume up to 3% of the transaction amount. Over the course of a year, this amounts to $50 billion removed from the economy. The merchant pays this --- and passes the cost along to you in terms of higher prices.

Visa and MC get only a fraction of the PSP fees. You can regulate this space and bring the fees down (like the EU did). But fundamentally, an electronic payment system isn't as simple as moving money from one bank account to another in an immutable way: that is extremely cheap already and further gains from using CDBCs would be marginal at best.

> The money transfer system that deposits your check is old and slow and involves human labor. Unless you pay additional fees (banks love fees), it takes at least 24 hours for the deposit to be made and the system only operates during "banker hours" --- 8-5 on weekdays; no weekends, holidays or nights.

> A CDBC will be fully electronic/automated with instant results and operate 24/7/365 at insignificant cost. Basically, it will speed up and put billions of dollars back into the economy.

No need for a CBDC to fix that. You just need to bring your banking infrastructure to the 21st century.

You just need to bring your banking infrastructure to the 21th century.

ACH is the central component of the banking infrastructure that needs to be brought into the 21st century. And a CBDC is how you do it.

It's just one way to do it. One unproven way at that, and with pretty serious ramifications.

I'd love to see an alternative that doesn't look a whole lot like a CBDC.

The "serious ramifications" are all things that are not being proposed. No one is suggesting to make cash illegal.

UK's Faster Payments, EU's SCT Inst, Brazil's Pix, India's UPI, ...

Shifting retail banking to the central bank brings a lot more questions than just worry about what happens to cash.

EU's SCT Inst

   SCT Inst stands for SEPA Instant Credit Transfer scheme. It was introduced by 
   the Euro Retail Payments Board (ERPB) in order to enable rapid electronic 
   payments within the eurozone. In a nutshell, SCT Inst facilitates an instant 
   or near-instant clearing of a transaction between originator and beneficiary.

Potato, po-tat-o.

ERPB = Central Bank

Credit Transfer Scheme = Digital Currency

Put them together and what do you get --- effectively a CBDC system denominated in Euros instead of Dollars --- minus all the hyperbola, misinformation and doomsday prophecy attached to CBDC on this side of the pond.

Shifting retail banking to the central bank

Nothing is being shifted. The existing system (ACH) is being modernized. No banks will be killed in the production of a CBDC.

What you want is instant interbank settlements that have existed for 20+ years in some places.

The scope of CBDCs is way broader than that. If no commercial bank is impacted by a CBDC then it wouldn't be a central bank digital currency, just a digital currency, and that's already the case for most of the money supply. If you use the term CBDC you're implying that the central bank would oversee a much bigger part of the money creation.

If no commercial bank is impacted by a CBDC

Commercial banks will be impacted --- in a good way. Interbank transactions will take place instantly 24/7/365 at zero cost.

Consumers will be impacted too --- in a good way. They'll be able to transfer money from their bank account to merchants, friends and family instantly 24/7/365 at zero cost --- no delays, no fees, no processors, no paper forms, no middlemen --- something that never existed before --- at least not in the USA.

Basically, a CBDC will make it possible to add digital wallet functionality to all bank accounts.

Like it or not, a CBDC is coming. The financial case for it is overwhelming.

An alternative to ACH need not push the technology down to the consumer but leave it at the interbank level.

Yes, this is exactly what a CBDC will do.

You'll still spend USD just like before --- not CBDC tokens. The only thing the consumer will see is new capabilities and transaction speed that didn't exist before.

Basically, a CBDC will be used to add digital wallet functionality to everyone's existing bank account.

What I don't really understand here is in what sense you're suggesting a new currency. It seems that you're suggesting that the central bank replace Visa and Mastercard. But those don't have their own currency either.

A CBDC is not a new currency for individuals to use. Everything you do will still be denominated in good ole USD.

A CBDC is digital currency that banks will use to process transactions between each other behind the scenes.

Right now; if I use Bank A and you use Bank B, there is no way for me to transfer money to your account without going through ACH (Automated Clearing House) which can take days and despite it's name, isn't really "automated" --- it was originally designed to process paper checks.

A CBDC will change this and make instant account transfer 24/7/365 possible. It will be like Venmo for everyone without any sign up --- you know, Venmo only works if both parties have signed up for a Venmo account and have funds deposited in Venmo. With a CBDC in place, the sign up will be an automatic part of setting up an account with *any* bank.

A CBDC will make it easy for you to split the cost of dinner with a friend while you're sitting at the table. Just use your phone to sign in to your bank account and make the transfer. Likewise, your friend will be able to sign in to his/her account and see that it's done --- instantly --- like magic, something that has never been possible before.

Basically, a CBDC will speed up and modernize the banking system.

Fees

> removed from the economy

This is untrue. Bank fees are not placed into landfills, figurative, literal or otherwise. At best you can say that dispositive decision making power for the money is changed from the transaction participants to the transaction facilitators. One might say that the leaders of banking orgs spend it on the frivolous, like large boats. The boatwright’s children might differ as otherwise they’d be beggars.

OK, removed from the *consumer* economy and placed in the hands of transaction middlemen.

> transaction middlemen

Who are in turn the consumers of other producers. The money doesn't get dumped into a never draining pool of gold in which "transaction middlemen" swim recreationally.

> A CDBC will be fully electronic/automated with instant results and operate 24/7/365 at insignificant cost.

Why would CDBC cost less if it is an improvement in value over the previous systems of credit cards, checks, and cash? From the TANSTAAFL perspective, debit, checks and cash aren't free, the cost is explicit in account maintenance fees or hidden inside the difference in interest rates between what the bank gets and what the account holder gets, plus the capital costs born by the receiver in facilities to handle pieces of paper. Since the fees are the same regardless of transaction volume, credit card has an advantage for consumers in that it is pay as you go and eliminates the personal facilities for check and cash handling.

CBDC transactions would not be costless, the question is how much, and form: flat fee, percentage, other socialization/cross subsidy. The question of how much will be driven by the cost of the service plus the transactors' perceived value of service over other mechanisms.

Likewise CBDC would not be truly instant but would have certain latency. On the payor side, for consumers the latency is an advantage--receive goods and service now, pay at the end of the settlement period or later if you pay for that service with interest charges. Why would a consumer choose CBDC if it doesn't include the loan to float between the transaction date-time and settlement date-time?

I'm not certain what the doomsday claims are, but there are tradeoffs to centralization. For example, getting de-banked becomes a heightened threat if there is no alternative. As an example, I'd offer the status of vendors psychoactive substances legal at the state but not federal level or those offering politically unfavorable goods and services [0]. Similar to the state of unbanked people everywhere, the increased reliance on more liquid payment forms brings increased risk of criminal predation since other market participants have de-risked though reduced cash holdings.

0. https://en.wikipedia.org/wiki/Operation_Choke_Point

Why would CDBC cost less if it is an improvement in value over the previous systems of credit cards, checks, and cash?

Because it will be *truly* computer automated and operate 24/7/365 without middlemen processors charging outlandish fees that are hidden from the consumer.

CDBC just becomes the “middlemen processors” only in singular. Aside from a hypothetical utopia, there is nothing that says it won’t do the same thing as the current processors. It won’t be free—even if no human is employed to maintain it. Current, cooling, hardware, network are all not without cost. From your description the best case for CDBC is to play underfunded and undermarketed generic to Visa/MC’s brand name pharmaco.

Current, cooling, hardware, network are all not without cost.

Yes but let's fact facts --- simple accounting on a computer is very cheap. Cheap enough that banks and the Fed can write it off as overhead --- unlike crypto mining which is intentionally designed to waste energy and money.

We are about to enter a new age of social welfare as Gen X and Millenials enter old age. We don’t expect anyone to start dying quickly. Boomers are here too. Start doling out the coupons digitally to subsidize life. Instead of printing money constantly, devalue the coupons (social security) and set rates for what life actually cost (e.g get everyone used to accepting 1 unit for food, 1 unit being whatever the government decides). Otherwise we have to keep manipulating a real world global economy with debt printing. If we do it, China does it, and the global economy gets whacky. It’s much better if China and America and India can just get their people to start looking at 1 dollar/euro of digitally money as worth 1 piece of … food.

But I hear you saying, “no, the cake is definitely $10”. Uh, no? No it’s not.

And that’s how we can pay for everyone, by convincing everyone to stop charging each other for everything. Take care of your elders for free Westerners, like every other country.

This is roughly China’s plan. They want to directly send money to people that need it. It stops graft and the black market, but the inevitable end game is that it’s state welfare, which is the easiest currency to manipulate (vs debt markets). You all wanted capitalism to die, it will, and it’s because no one is going to die. Welfare is the dystopia no one ever told you about, not the hedonistic capitalism wolf we’ve all been crying about.

So...price fixing? That definitely hasn't worked so well in the past.

Whether it works well or not will not be of concern, it will be the only choice.

except that it's not. Every government who ever did price fixing said literally the same thing. Then people make black markets trading chickens for goats. It's literally impossible to prevent and the first time someone does it your price fixing scheme evaporates.

Has it been done at the scale we’re about to enter? I honestly can’t see an alternative here, but I’m happy to hear your thoughts. We’re talking most of the Western world, and to a lesser extent China/India, but they traditionally keep the elders at home for free anyway (which means they will have to subsidize the average working age people - front loading the problem essentially).

Ease of taxation

== I explain it in four economic levels, why it is critical and my personal view: == Example:

Micro: 1:Let´s say you need a small investment. Right now you need to apply for a finance structure at a bank or group of people with numbers about your projection. We have public insights right now, ´data-driven´ was the holy grail.

Meso: 2: What if you don´t have insights of the economy when crypto takes over? How is a local football club going to finance a new building? The wealth gap is increasing and clubs like that ore not self-suffienct.

Macro: 3: What happens is that the economy slows down at the economy due to indifference at the beginning of the supply chain. Many big online companies make money through adds, but if people don´t buy items to sell, then they don´t need to buy much adds, which means online companies make less money.

Meta: 4: Long-term investments are critical for any economy. You can´t hire people if you are not sure about future economic prospects. The central bank want to create stable economic growth. If they don´t know the numbers, they cant´t help. Small companies and big companies are in favour of a certain external stability, without that doing business projecting would be gambling. We don´t need that. ==

Why it is critical:

The big issue that needs prevention is that economics impact each other in a domino effect. Economies have movement up and down, the thing is that have accepted and dealt with the benefits over time much from a western perseptive and now that the global economy like america and china are more equall the impact of a downturn in china would impact america much more.

example: If war happens in another country in the world, we almost directly experience effect in other countries.

Classical economics and keynesian economics both argue about what is smart: More goverment or less goverment.

Goverment is in my eyes more a ethical motivator for the society. Goverments already impact economy through climate policy. I think that role of advocate of justice of society through economic policy could be right. That depands on the design of the decion making unit. === WHy: Tax in general is difficult, now with crypto it is going to be more difficult.

How: I think it is important that we should argue the cashflows of goverment in general.

What: I think all organisations should focus on being self-suffienct and let the goverment help those organisations with doing that for justice in society.

When & where: Less = more / more = less is my economic few. --> if something works self-suffient, try doing less = making time and capital available --> if somehting does not work = spend capital and time to make it self-suffient.

== I mean for example:

why are foodbanks not working together more effective? Why don´t we have more laws to help prevent food waste? Why don´t companies and locals sponsor foodbanks? Why are people volunteers without benefits?

I´m more worried about the people who suffer the most in economic downturns. == My point is that we can design the economy we would like to live in, we do that by developing crypto with it´s benefits, now we need to think about the impacts of the perspective from central banking. ==

... mining is killing the planet, it's a big contributor. No we don't need more reasons to waste energy.

Mining has nothing to do with CBDCs

CBDCs aren't cryptocurrencies.

Mining isn't killing the planet either, mining is securing a ledger. These technologies are for the first time in human history, divorcing the power of the purse from governments, who have only ever abused it. It is the human rights issue of our age, rendering things like inflation and financial censorship impossible without resorting to threats of violence. They provide an open, public ledger enabling new forms of ownership in a trust-less, transparent system, we can use to organize solutions previously mired in human bureaucracy.

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