You might not know that France still has a central bank despite using the euro, but its governor, Francois Villeroy de Galhau is the latest to join a debate among the old generation on how to upgrade fiat money or indeed if it should be done at all.
“Currency cannot be private, money is a public good of sovereignty,” Galhau said while by “private” referring to companies.
What he means by “cannot” isn’t clear as gold is not some “good of sovereignty.” Nor is it clear why he uses the word “private” specifically because the vast majority of fiat money is created by private banks the moment they issue a loan.
In any debate terms matter, words matter, and they matter considerably when they are stated from an official position because the holders of that office are entrusted with certain responsibilities, including that of not misleading the public.
If money is a public good, then Galhau would do better to explain how that is exactly the case. Was it a public good, for example, when the banking system bankrupted Greece and New York? How much of the initially created money does the public get? If so much money is being printed, why is the government in so much debt when they should be swimming in newly created money? Is the requirement of interest a public good? Or is it a private profit?
We do not expect grandpas to answer any of these questions for informing the public is a duty they’ve often avoided in preference for sometime misleading rhetoric, yet without answering these questions there’s hardly an open debate over central banks crypto currencies.
“China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts,” Norihiro Nakayama, Japan’s parliamentary vice minister for foreign affairs, says.
“China warned not to rush into creating digital currency to rival Facebook’s Libra, instead join global debate” is the headline of a China focused paper.
“Central banks from Canada, Britain, Japan, and Sweden, as well as the European Central Bank, this week joined forces to look at ‘cases for central bank digital currency,’ they add.
“Maybe BIS Membership Slowed China’s Digital Currency Launch,” speculates a China focused crypto site.
The Bank for International Settlement (BIS) so being the coordinating organ of central banks where such things as even what to call cryptocurrencies are determined.
Central Banks Blockbuster Moment?
Nothing has come out of this “looking” into a national or even global central bank currency, primarily because it’s a bit like Blockbuster trying to rent movies online.
Back in the early days of the internet there was this popular global brand that rented out VHS movies to watch at home through VHS players and then DVD players with the requirement that it is returned in a week or so.
If Blockbuster had decided to rent such movies online for a week or so, the ability to easily copy them would have led to them having no business.
The continued increase in internet speed and convenience did eventually put them out of business anyway, with 20 years later Netflix rising as the online version of Blockbuster.
So why could Netflix do it, but Blockbuster couldn’t? The answer has many components, but probably the most important one is that during the time of Blockbuster, internet innovation was at full speed. By the time of Netflix, complacency gave way to the convenience innovation of back to Blockbuster.
Another way of putting it might be that at the time of Blockbuster no one quite understood the internet or where it was going. By the time of Netflix, the internet had kind of stagnated.
The relevance of all this being that central bankers currently have no idea how the blockchain medium can be utilized to do what they currently do but in a digital cash form, nor do they quite know whether they want to do so.
For something like Facebook, Libra is more of an experiment which might work or might not work, with their key business of “connecting people to advertise at them” not being affected in either case.
For central bankers, money is all they do, just like Blockbuster only rented movies and just like putting all those VHS online would have been quite an undertaking that may have bankrupted their business, so too putting the current monetary system on a digital cash footing kind of makes the banking system sort of irrelevant.
Digital Cash or Existing Digital Currency?
It is of course the banking system that central bankers serve primarily, with any “public good” deriving from how well or badly they serve the banking system.
If digital cash is made available to the public, then the need to use a bank subsides considerably because an open source wallet app can provide the plain banking services.
If digital cash is not made available to the public, then the entire exercise is probably pointless because it would be little different than upgrading their MySQL 4 database to MySQL 5. Just something on the backend that no one can use.
If it is made available to the public, however, then the question of what exactly is a national currency becomes a very important question because if this is something like bitcoin but with the central bank managing issuance, then it’s a global currency.
You may call it yuan, euro or dollar, but there would hardly be a distinguishment because they would not be limited to national borders through access to a national bank account.
Initially it might be limited, when you withdraw it, but as it runs on the internet it can be sent anywhere and thus no central bank crypto can really be national.
That’s unless of course it can’t be withdrawn outside of the bank, but in that case there are already digital currencies. What there is not is central bank digital cash.
Hence why terms matter as they can easily confuse or clarify. With the clarification being to put the question in these terms: would any central bank dare issue digital cash?
The answer for now and for many years if not decades, is probably no, unless it’s a pretense of digital cash in it being accessible only from a wallet the bank controls, which is what we already have with the dollar, euro, or yuan through apps like Barclays bank or JP Morgan or whoever.
Debate or Facade?
For actual digital cash the answer is no because it’s a big question and it’s a question during a time we don’t quite understand what all this crypto and blockchain stuff is or where it is going.
Would digital usd cash, for example, collapse the national money of many economies? While for yuan digital cash, would that collapse the Chinese economy?
How would you control supply if all this digital cash is outside of the banking system? Although on the other hand you’d know how much is out there presuming you can figure out how many have lost their private key.
Unless of course there is no private key which brings us back to we already have digital currencies.
So really this entire debate appears confused. More old men trying to appear like they are doing something or are keeping up or are planning to innovate or far more likely are engaging in empty rhetoric to fool the elected and the public.
This “debate” over digital currency re-arose from an assault of sorts on Libra with banks then using the carrot of: of course we will innovate instead.
It’s a topic they always bring up when they try and say bitcoin or crypto is bad and should this or should that, but don’t worry we will do bitcoin instead.
Just like their endless misleadings on the nature of money so too this endless misleading of “digital currency” that has even third world countries claim they’re experimenting with it.
Pointless experiments to try and avoid the question of should there or should there not be central bank digital cash and if there is, what effect it might have on the national and global economic system.
To answer that they have to explain what is money, what role interest has on its creation, what role private banks play in the system, and what role cash has in all of this.
Transparency however is not quite a word associated with central banks, so instead we get pointless rhetorics about “public goods.”
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