Shortages are politically unpopular. A cause of permanent shortages is the price ceiling. Price ceilings are often imposed on markets because something even more unpopular is occurring — rapid price inflation. As prices jump up, people want to blame someone for their misfortune. Easy scapegoats are the shopkeepers who are asking for ever-higher prices. Politicians looking to score some quick political points advocate for price ceilings as the solution.
There is a clear causal chain of events.
Governments spend more than they tax.
As a result, governments turn to money creation to cover the deficit.
The new dollars are injected into the economy, which devalues the dollar and moves prices upward.
Politicians present price ceilings as the cure to this crisis, resulting in shortages and eventually a political backlash.
The politicians try to deflect the backlash and shift blame to anyone else.
But what if this could be avoided?
No, I am not suggesting transforming politicians into responsible representatives who “live within their means.”
That is clearly a myth.
I mean, “what if the backlash could be avoided because no shortages develop?” Some might think that the only way to achieve this is by suspending the laws of economics. Not so.
There is a potential solution that is nearly in our politicians’ grasp. The solution is called central bank digital currency.
Beyond the name, what is a CBDC, and is it much different from other digital currencies? Today, most of our currency is digital. Most people use cards or their phones (e-wallets) for most transactions. Only a small fraction (about 10%) of the total in circulation is physical ($2.2 billion in currency versus $20.8 billion in M2).
A major difference between CBDCs and today’s digital dollars is that CBDCs employ blockchain technology. Blockchain technology does for digital currency what the serial number does for the physical note. However, it also goes much further. Not only is each CBDC dollar identified, but its entire history of moving from one account to another is saved.
Several other digital currencies, such as bitcoin, have the same tracking feature. The difference, however, is that the owners of the CBDC accounts are known by the central bank while the owners of the bitcoin accounts are anonymous to all.
The central bank will know the history of each CBDC dollar and who owns which CBDC dollar at any moment because all the accounts will be centralized under its authority. Each person, nonprofit entity, corporation, etc., will be required to have an account at the central bank.
While this level of control and surveillance by the central bank is ominous, it is essentially taking place today. What the CBDC would do is streamline the ability to investigate anyone’s affairs into a single organization, the central bank. Any amount of friction between snooping authorities is a good thing for privacy advocates, but the reality is that even though these functions are spread across several agencies, the U.S. government can monitor transactions, freeze accounts, directly garnish wages and so forth.
The unique threat found in the CBDC, which gives it a more sinister character, is that it is programmable.
A programmable currency gives the creator tremendous power.
Practically anything could be done with such power. Accounts could be frozen. Money could be subtracted from accounts. Transactions could be partially blocked or blocked in total. These accounts could be linked with other data, allowing algorithms to selectively manipulate purchases. It is these manipulations that give the central bank ultimate power.
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