Governments around the world are looking to create a bitcoin clone of sorts where they add the crypto and blockchain aspect while maintaining the “out of nothing” money aspect at the whim of the central banker.
A crypto euro, a crypto yuan, and maybe even a crypto dollar, is arguably inevitable at some point.
It’s something that has been predicted for years, and some now openly say its intention is to compete with native cryptos like bitcoin or ethereum.
That central banks see cryptos as competition is obvious. Unlike commercial banks, which arguably would still be needed in a crypto world, central banks are completely replaced by code money.
The job of a central bank is obviously to decide supply and how that changes. They do so through the interest rate and a fairly complex system that kind of automatically increases or decreases supply based on fairly simple parameters like the interest rate.
Bitcoin gets rid of all that and sets it all algorithmically in addition to removing fully this tweaking aspect by having a fixed rate of supply.
In the bitcoin world, the value of money changes based on the increase or decrease of productivity, not based on the diktats of a central banker.
To ensure that is the case, there’s the entire bitcoin system with miners, the blockchain, the cryptography, the crypto economics, the consensus system, the nodes and the code.
If we don’t want to ensure supply can’t be tampered with except by node consensus, then a lot of bitcoin’s components are not needed, like miners.
What we’d still be left with is digital, potentially open, even generally permissionless, code money. Hence the attempt by central banks to maintain that manipulating quality while providing the sort of “harmless” aspects like faster, or codable.
The Central Banks Dilemma
The theory goes that if central banks offer bitcoin-like money, while maintaining the ability to manipulate it as they please, many will not care about the latter, and thus gov would have political cover to outright ban something like bitcoin.
Obviously in reality the opposite might happen. Such govcoin might validate bitcoin. But regardless, it appears central banks are actually unable to really create a govcoin. Not technically unable, of course, but “politically” or as a matter of policy.
The People’s Bank of China (PBOC) has been “working” on a crypto-like currency since at least 2016. To justify the curtailing of bitcoin, they reminded us of it in 2017. In 2018, they gave it a new acronym, DCEP. In the 2019 detente of blockchain not bitcoin, they made it very clear this is not crypto-like at all.
What they apparently have in mind is what is being called a two-layer structure. That’s basically the current system where the central bank is the banker of commercial banks, which are the banker of everyone else.
Details at a technical level are not too clear, but this sounds like very back-end, of a pretty closed system, with very few participants, where what comes at the user-end is more pretty much the current system.
How It Can Be Done
If we try and place ourselves in their shoes and think of how they could do it, the central bank is basically in charge of the actual code which commercial banks connect to and have to follow.
The problem is commercial banks would then probably not want to allow the public to connect to their Simple Payment Verification (SPV) system because if they do then the commercial bank loses control over deposits.
If ordinary people can simply SPV, then commercial banks would have to compete with even basement dwellers who can offer wallets. Meaning a bank run can be very easy, although the bank can off course cut off access, but that could provoke panic.
Conceptually in a way this can be cash. It can work pretty much as the current system, but instead of taking the money out of the banking system at an ATM, you can do it on some app.
Why a commercial bank would want to allow that is not too clear. Their justification, the usual. Money laundering, criminals, reee, be terrified, trust us. Their real reason?
Well, they’d lose control. Not fully. They’re still in charge of giving access, but that would be just at the beginning, to bring the money into circulation.
Once they do, there would be no difference between a basement app and a Barclays bank. Meaning this would be a financial revolution in a way. Everyone would be able to be their own bank.
Of course the central bank could potentially delete accounts or freeze, as could the commercial bank, but arguably no one would fundamentally care about that aspect because you’d expect decorum which can be enforced by the people even in outright dictatorships.
For the vast majority, such system of access would probably translate to the end of banking as we know it, with a vast expansion of competition, and pretty much a transformation.
The China Factor
We said central banks might not want to do the above on policy grounds, but we were thinking more of the western banking system.
China has bypassed banking as we know it. A version of the above is sort of current reality there where tech giants are in control of the vast majority of payments.
Control that PBOC would like for itself. So while ostensibly this is about tech advancement, it could be more about the concentration of power over money.
The problem is, in the above system, because money can get out of the banking system or a WeChat app, such power is diminished both for PBOC and other current gatekeepers.
In a way, the above system is no different than the current system because access is through the same gates. Yet in another way, once the money is out, there are no gates.
Meaning logically and as much as we can guess, as much as PBOC might dislike WeChat’s challenge, they’re probably even more worried about 1,000 WeChats challenging them.
Hence why it has remained all talk for years, and probably will continue to remain all talk, unless they are basically forced to open the system by global, scalable, and permissionless blockchains run by the people themselves.
The Real Banking System
When one talks of inflation or money out of nothing, these words mean… well nothing. They’re almost not words at all. They’re abstraction upon abstraction.
The real banking system operates on two premises. Deciding who is worthy, and deciding who decides that.
If you lend Trustnodes one billion dollars, for example, as Trump was lent, then Trustnodes would be instantly very rich and very powerful.
If you do not lend someone a mortgage, then unless they have a “free” house, they’d have to pay rent to someone who was lent a mortgage.
The mortgage receiver in this case is not getting a loan, but a free house. Who he is, in this very simple example, is the basis of the banking system.
It is a system of almost total control. A system that decides who eats bread and who starves based on ostensibly many reasons, but in practice most probably based on the USSR sorts of statisticians that decide who should get a loan where, and thus who should be worthy of value.
A decision by the central bank to issue directly a crypto-like currency would be a decision to overturn this system of control, ostensibly into one of even greater control.
If everyone can SPV to the central bank node and receives this 1.8% of out of nothing money on their savings, then the central bank is the banker of all, while commercial banks are mere service providers.
Currently, commercial banks are in many ways the central bank. They are the payment system. They are money for all common purposes. They have control, far more than the central bank for they decide just how much out of thin air money does actually get to the people, and thus does actually get printed.
If you take them out of the equation, everyone is a bank with just one gate, the central bank.
Commercial banks will not allow that because it takes away their power to decide just how much money should be printed and who exactly gets it.
Their pitch is: better a handful of banks decide thus, than some bureaucrat that can be fired by the president. Their pitch is: this dual system is more decentralized, why concentrate it in one bank.
They’ve won, at least in China. They won in Switzerland too. Both are premature. Both are trying to pre-empt. Both feed on an uninformed populace where money is concerned.
For if one assumes a system where an accountable body, maybe even with a jury, decides the increase or decrease of monetary supply through a process of changing some number in some code, then why should the access to such system be limited to four banks?
The argument of centralization presumes the central bank does not currently decide just how much should be printed through the interest rate. Something that is true for it is the four banks that realistically decide so. Thus the choice being accountable and electable policy, or oligarchy.
That the current system has chosen the latter is far too obvious. And that central banks would not really compete with bitcoin, thus, is obvious too. They want, but they can’t. If they do, well Viva la Bitcoin.
Editorial Copyrights Trustnodes.com