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.
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.
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."
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.
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.
>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
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.
This is happening already, but is expected to accelerate over the next few years.
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?