Could digital currencies put banks out of business? | The Economist
- Thread starter morris
- Start date
OfTheCross
Veteran
Clickbait. That shyt ain't happening.
scary times
Key thing here. Crypto is a digital currency but not all digital currencies are crypto. 7:55 onwards in the video is a key section as it explains the CBDC concept. The 10:00 min mark should be a point of concern for many...
Already rolled in China. The US Fed is doing its own research into it as well. It’s coming
Watch from 8:10 onwards. The CBDC actually could help avoid tax fraud and money laundering but at a potentially steep cost to the consumer.
Don’t look at digital currencies just as crypto, but as actual central bank backed digital currencies. There’s a very important distinction and the nuance of how the currencies are issued is very critical.
88m3
Fast Money & Foreign Objects
thanks
Right - but if the US creates a digital currency, it will operate just like cash. The concerns about the government being a the major bank of the US does have it's downside, but the upsides are promising.
- More equitable loan process/remove the remaining remnants of red line bank practices
- Create savings acct w the Post Office
- Reduces the speculation in the economy
There are definitely down sides, but positives outweigh the negatives.
Just a primer of the status quo and how CBDCs would change that.
Current Model (the US)
The Fed interacts with commercial banks (BoA, Chase, Wells Fargo etc). Those commercial banks have relationships with individuals and businesses.
The CBDC model would essentially upend that as individuals and businesses would have a direct relationship with the Federal Reserve in the form of a digital wallet that can be topped up.
Case: John Smith can choose to hold his money in a digital wallet/account directly held at the Federal Reserve. Corporation A that employs John also has an account at the Fed. When Corp A runs payroll for John, the Fed simply credits Johns wallet and debits Corporation A.
Conversely, if John goes and spends money at Pizza Shop A. His account is debited and the Pizza shop’s is credited. All in real time at the Fed.
While you get real time payment and settlement of transactions, consumers lose privacy in payments as the Fed can see every transaction made.
More worryingly, is that money can be programmed in a way as to freeze its use in certain sectors. In theory, a Central bank can program the currency so it can’t be accepted by Merchants linked to fraud or other crimes. But that use case becomes a very slippery slope.
The biggest obstacles for the CBDC are technological capabilities and consumer adoption. While many people bemoan big banks, they’ve been around long enough that consumers understand the relationship and what they get out of it.
In theory. The CBDCs are programmable so in truth, the Central bank can program negative interest rates directly into the money and pass that to the consumer if there was every a monetary policy for negative interest rates. Cash has no interest. Also, there's privacy that comes with spending cash. If you want to gamble in Vegas without your spouse knowing, cash is the way to do this
The biggest thing I see is the consolidation of power (and resources) to one entity, The Central Bank. The money being programmable means citizens and businesses can be "programmed out" of the economy for not following protocol. For some instances, it makes sense. Individuals and businesses can't spend money on/at merchants linked to terrorism. However, for other cases that aren't clear cut I see worrying signs.
Current Model (the US)
The Fed interacts with commercial banks (BoA, Chase, Wells Fargo etc). Those commercial banks have relationships with individuals and businesses.
The CBDC model would essentially upend that as individuals and businesses would have a direct relationship with the Federal Reserve in the form of a digital wallet that can be topped up.
Case: John Smith can choose to hold his money in a digital wallet/account directly held at the Federal Reserve. Corporation A that employs John also has an account at the Fed. When Corp A runs payroll for John, the Fed simply credits Johns wallet and debits Corporation A.
Conversely, if John goes and spends money at Pizza Shop A. His account is debited and the Pizza shop’s is credited. All in real time at the Fed.
While you get real time payment and settlement of transactions, consumers lose privacy in payments as the Fed can see every transaction made.
More worryingly, is that money can be programmed in a way as to freeze its use in certain sectors. In theory, a Central bank can program the currency so it can’t be accepted by Merchants linked to fraud or other crimes. But that use case becomes a very slippery slope.
The biggest obstacles for the CBDC are technological capabilities and consumer adoption. While many people bemoan big banks, they’ve been around long enough that consumers understand the relationship and what they get out of it.
In theory. The CBDCs are programmable so in truth, the Central bank can program negative interest rates directly into the money and pass that to the consumer if there was every a monetary policy for negative interest rates. Cash has no interest. Also, there's privacy that comes with spending cash. If you want to gamble in Vegas without your spouse knowing, cash is the way to do this
The biggest thing I see is the consolidation of power (and resources) to one entity, The Central Bank. The money being programmable means citizens and businesses can be "programmed out" of the economy for not following protocol. For some instances, it makes sense. Individuals and businesses can't spend money on/at merchants linked to terrorism. However, for other cases that aren't clear cut I see worrying signs.
ogc163
Superstar
No.
What could propel the adoption of CBDCs is if one of the Too Big to Fail banks gets a run on the bank and people can't get their money out of the bank. To avert that risk, consumers could choose to move their funds to an account with the Fed.
I've been watching this development very closely.
I've been watching this development very closely.