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Can CBDCs Prevent the ‘Accidental Elimination’ of Public Money?

This last week I took a group of American uber-executives (they each run groups for CEOs of substantial US companies) on a journey from Satoshi’s first big moment in 2008 to the present day and the dawnings of national digital money. Through its infancy and on into the eye of the digital money storm, five years from now.

Along the way observing the shifting tectonic plates of geopolitics and especially the plate delineations and movements we can already see around the world, and especially around China.

We visited the dominance of the dollar contemplated the forces that have left it so far behind the curve, including its very dominance, but also the complacency that this tends to bring.

As we thought about the Titanic forces already in play as we move into a disruption looking to be greater than that of the internet itself we looked at where those forces might take us. Peering through the next five years into the eye of the storm,

Asking what will it mean for the nation-states and for the concept of nation statehood itself? Who will be the winners and the losers as, on the one hand, digital money goes mainstream, potentially in a myriad of different competing forms – pulling the rapidly growing DeFi ecosystem and crypto assets along in their wake and so into the mainstream?

Validated by the de facto blessing of the central banks for digital money that’s already begun.

Later that same day the USA’s Federal Reserve chair Jerome Powell performed something of a volte-face in announcing their CBDC, digital Dollar, project, having until recently maintaining a ‘there’s nothing in it for US’ stance. Saying: “The [forthcoming] paper represents the beginning of what will be a thoughtful and deliberative process,” at the same time as claiming its been on top of it and experimenting for years: “For the past several years, the Federal Reserve has been exploring the potential benefits and risks of CBDCs from a variety of angles, including through technological research and experimentation.”

More on this, and the USA soon.

The UK meanwhile taking its leap forward with the recent (13th May) speech by the man in charge of the digital Sterling project at the Bank of England to the ‘Digital Money Institute’ (part of OMFIF – a Central bankers. think tank).

This received astonishingly little coverage considering its implications and its content. The 50-minute speech is well worth watching revealing as it does some of the quite astonishing thinking behind the project which will have major implications for decades to come and beyond..

A Defence of State (Public) Money

Interestingly the speech represents a defence of the existence and role of ‘public money’ in the face of an increasingly existential threat from what he (at last) helpfully labels ‘private money’. Money created as credit by commercial banks, which makes up the vast majority of the money in existence.

Public Money Under Pressure from Provide Money’s Providers

This is astonishing because at the very point when the opportunity exists to free money from the entrenched privileged positions of these private companies who can and do levy multiple private, hidden, taxes for private gain – first for the creation of money, and secondly, for its transmission – it seems that this central bank is under significant pressure to all-but shut up shop for the provision of ‘Public Money’.

It seems that The Bank of England, and presumably other central banks around the world are under pressure from the commercial banks to bow out of the field completely – apart, perhaps, from a dwindling role for physical cash. As I say, astonishing.

The Two Kind of Money

Meanwhile, this speech provides the clearest and most authoritative exposition, from the Bank of England, and as far as I know any other central bank, of the different kinds of money on which the economy runs.

Sir Jon Cunliffe rightly points out that the vast majority of the population seem to believe that all our money is created by the state. That commercial banks play a more peripheral role, in lending and so on.

When in fact, banks create overwhelmingly the vast majority of money in the economy. And charge interest on it of course, as credit. This is in effect the digital money that we already have. On which two slices of private, stealth, tax are levied by the private banks; for creation and transmission.

First in the form of interest, and the latter in the form of transmission fees.

Private Money – Two Stealth Taxes

Both of these, as he points out, quietly show up hidden in the prices that we pay for just about everything. Concealed. Both levied out of sight on businesses. So unseen by ‘consumers’.

The Ongoing Shift  to Private Money

The speech makes clear that the balance between public and private money has already shifted enormously, and decisively, in recent years – and that this, unplanned and unregarded, continues to accelerate.

“The majority of the money held and used by people in the UK today is not physical ‘public money’, issued by the state, but digital ‘private money’ issued by commercial banks. Around 95% of the funds people hold that can be used to make payments are now held as bank deposits rather than cash. In everyday use, only 23% of payments [even] pre-pandemic were made using public money in the form of cash, down from close to 60% a decade earlier”

The Dominance of the Private Banking Sector

This is a fascinating lens through which to see the progress of the private banking sector in dominating the economy – and displacing public money with their own. With support from the state to do so in the form, including in the form of guarantees. (If this isn’t privilege in the form of state-aid, then what is?)

The speech goes on to trace not just the progress but also the mechanisms in quite some detail.

Mulling also about the future regulation of big tech platforms with new business models based not on credit, but on data-driven services. More discussion papers are planned, but no dates were given.

CBDCs, Digital Sterling and Major Issues for Democracy and Civil Society

What was given for the first time was an explicit acknowledgement that some of the issues involved fall outside, well outside, the remit of a central bank and lie with government and democracy.

This is extremely welcome as at the point of the announcement of the digital Sterling project the party-line from central banks did appear to be to, as far as possible, gloss over the need for a democratic mandate for a change of this magnitude. Which could, indeed will, shape the future of society and us all, and set the balance, perhaps permanently, between public and private.

“There are also some wider social questions about the type of money we use that fall broadly into the category of ‘values’. … The first is inclusion”

Not to mention what Cunliffe called those that fall ‘broadly into the category of values’, including inclusion, privacy and data – and its uses. Acknowledging complex multi-dimensional, public policy objectives.  Perhaps this is the closest central banks ever get to a wake-up call?

A Wakeup Call – and a Historic Understatement

In his conclusion also acknowledging that regulation can be extremely expensive and slow to react, as well as difficult to police – with a tendency to create barriers to competition.

He pointed, in what must be some kind of historic understatement, that “a well-designed and effective public money alternative in combination with regulation where necessary would provide a more efficient and a more robust answer.”

For this reason we will no doubt explore in the coming weeks and month it is a global necessity – and we cannot afford either to wait around – to get it wrong – or, as is becoming clearer by the moment to leave the care of key democratic and societal decisions which will not just shape but largely decide the future of the many, to bankers alone. As the ECB and others seem to prefer!

Creeping Dominance – into a Death Dive?

Concluding, he acknowledges the creeping dominance of private bank money, saying even without the new, technology-enabled forms of money that are on the near horizon we are seeing accelerating changes in the way we live and transact that will greatly reduce and perhaps eventually eliminate the role that public money plays in the economy today.

New technologies and the entrance of new players are likely to reinforce these trends. We should not let this happen by accident.”

Or, indeed at all! In a world whose viability is threatened by ever creeping financialisation created by financial engineers creating and supporting a powerful oligarchy who are content to continue our death dive it would be a little short of suicidal.

The advent of the right kind of digital public money may well be our last, best, chance to turn that around. I think that it is therefore fair to say that this is an important democratic issue worthy of a much wider debate


  • Barry E James is a founder of public engagement initiative RemakingMoney.com and founding chair of the BBFTA.org (British Blockchain and Frontier Tech Association). He is an author and columnist, notably for CityAM's CryptoInsider, and is a visiting fellow at the University of Portsmouth Business School.

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