The Pied Piper Of CBDCs

CBDCs – The Pied Piper

Jeff Thomas 

In modern nomenclature, a pied piper is described as “a metaphor for a person who attracts a following through charisma or false promises.”

And that leads us to a discussion of Central Bank Digital Currencies, or CBDCs.

As recently as ten years ago, when writing on the possibility of digital currencies being introduced, the idea was so novel (or perhaps so abhorrent) that my predictions on the subject were considered to be fanciful. Yet, by 2016, announcements were being made by governments that digital currencies were “under consideration.”

And in the brief time since, the concept has caught on worldwide. Eleven countries have now launched them, and another eighty-seven are either researching them or developing them.

But why is it that bank depositors would accept the introduction of CBDCs?

Well, on paper, they sound great. No more trips to the ATM. No more need for credit cards. No more worrying about carrying around cash. No more purse snatchers – you can carry all your savings on a cell phone and do so safely. All crime could end, as any criminal would leave a trail of transactions for banks to monitor.

And these, of course, are the promises that are being touted by the latter-day Pied Piper – the “false promises” mentioned in the definition above.

So what’s the attraction for governments and bankers so eager to go digital?

Well, for bankers, the answer is that they’ll have the opportunity to phase out bank notes. Most activities on the retail floor will be outmoded. Since all transactions would be digital, they’ll all be performed by bank clerks on computers, without ever having to face customers. Additionally, depositors will no longer be able to store currency elsewhere. Depositors will be at the mercy of the banks, as they’ll no longer be able to make even the smallest transaction without passing it through the bank. This not only makes it possible for banks to raise their transaction fees at will, but it also gives banks the ability to decide what transactions the depositor is allowed to make, as the depositor may no longer have any alternative transaction capability.

Of course, many depositors will attempt to turn to cryptos, and there can be little doubt that those who don’t presently see cryptos as monetary freedom soon will. But it’s likely that, as cryptos become the solution to bypassing banks’ increased dominance of currency, banks would freeze or close the accounts of depositors who are discovered to be dealing in cryptos.

The depositor will then have to assess whether he can carry on his daily financial life without his bank account. After all, will his grocer or the station where he buys fuel for his vehicle also risk the freezing or closing of their accounts? Might those who seek freedom of commerce be frozen out of day-to-day purchases? It remains to be seen how this will play out.

And, while we’re at it, what will the benefits to governments be?

Well, governments will not only have greater power over the movement of currency, without the cost of producing bank notes, but they’ll also have the ability to require banks to reveal all transactional information on depositors. At the very least, this will mean the ability to eliminate voluntary income tax, as taxation will now be possible by direct debit. It also will not need to be annual but could be carried out monthly, with each bank statement. And rates subject to frequent, unannounced change.

More...