The digital pound: A new form of money for households and businesses?
bankofengland.co.uk
bankofengland.co.uk
I haven't yet read this publication in full, but last year I did read the House of Lords Economic Affairs Committee paper on the topic[1]. The title was quite telling: "Central bank digital currencies: a solution in search of a problem?" This was authored by Lord King, the former governor of the BoE, amongst others. It seems the current BoE is taking a different course.
[1] https://publications.parliament.uk/pa/ld5802/ldselect/ldecon...
I find it difficult to understand why a digital pound is anything more than an incremental improvement (or worsening from your perspective). What does a digital pound enable the government to do that would interfere with the everyday person's life, that isn't already possible?
(Also, cigarette prohibitions and social credit scoring are hot button issues for people who believe in the sanctity of individual rights but they're not at all related in the context of this discussion. There's nothing terrifying about a cigarette prohibition to most people, especially in the UK, where we've literally had various cigarette restrictions imposed over the years to the point where a NZ style prohibition would probably not even register for almost everyone.)
Source: https://www.msn.com/en-us/money/news/digital-currency-yuan-c...
> Tom Mutton, a director at the Bank of England, said during a conference on Monday that programming could become a key feature of any future central bank digital currency ... what happens if one of the participants in a transaction puts a restriction on [future use of the money]? ... Sir Jon Cunliffe, a deputy Governor at the Bank, said digital currencies could be programmed for commercial or social purposes ... “You could think of giving your children pocket money, but programming the money so that it couldn’t be used for sweets. There is a whole range of things that money could do, programmable money, which we cannot do with the current technology.”
Basically it was used successfully to keep a local economy going during the great depression.
Alberta, for example, tried circulating banknote-analogues that required a stamp to be added every week to remain valid; the goal was to encourage people to spend them rather than having to pay for the stamp.
In the context of something like economic stimulus payments, where the goal is to force jumpstarting the economy NOW, how would prevent people who can afford it from just setting aside their payment for later use?
Any doom-mongering about a hypothetical future in which The Government is doing Bad Things because they know what you’re doing with your money is, well, ignoring the thousands of bad things that we don’t need to theorise about because they’re happening at this very moment.
For example, our government has starved our national health service over the last decade and there are very real threats to its long term survival: I care orders of magnitude more about that than I care about the hypothetical world in which the government make money expire or deduct from my social score because I exceeded my quota of beans at the grocery store this week.
Gold standard advocates passionately debated about terrible problems with silver in the 19th century. Crypto demonstrated that digital cash has value - even when that is backed by various grifts.
Is brilliant and the only way to realistically ban cigarettes without screwing over entire generations who are already addicted to nicotine.
Let's give a real example. My great aunt in her late 60s has a 40 year pack a day smoker. There is zero chance whatsoever she would be able to quit before she dies and it would be cruel to try and make her. There is no way you can pick a single date after which smoking is banned for everyone, it will be so loudly, and rightly, fought that it would never pass. I don't want to live in a world where a not insignificant percent of the population simultaneously goes through nicotine withdrawal. Because I've seen my friends quit and patches and gum don't keep you from being miserable.
If you don't think cigarettes should be banned, fine. Valid stance. But if you think they should this is the way.
All this would do is get rid of the middleman and the defacto tax assessed on all commerce, both direct or indirect through sale of data.
It's no surprise to me to see government gold buying on an absolute tear. [1] The powers that be are well aware of the importance of having real physical goods for the sake of trading and maintaining wealth.
[1] https://financialpost.com/commodities/mining/central-banks-b...
Genuinely curious - what do you think will happen (and what would be used)?
I genuinely can't imagine most of the people in my life (be that older relatives, non-tech friends, whoever) using anything but whatever 'money' is convenient. None of them care the government might be watching, and if they were going to barter for anything they're probably already doing it ("you help me with this DIY, I'll take you for dinner").
FWIW I'm in the UK, so perhaps my perspective is skewed?
I don't know if the UK is different from much else of the developed world, but here there is a tremendous amount of off-by-book transactions in the largest industries such as farming and construction. I do not think that the disappearance of cash will remove this economy, but it will have to migrate to other assets with similar qualities.
China and Russia buying non-dollar reserve assets has nothing to do with “people…using government money.”
Remember, it is only counterfeiting if you do it. It is "good" monetary policy when the government does it.
It's counterfeiting when you try to pretend your own currency is government produced.
The US government is only authorized to coin money. That is making coins out of metal.
Unfortunately 98% of the money we already use is digital and controlled by the private banks. What's worse, the government or private banks? You could argue that we go back to physical cash only. Good luck with that. Or you could argue that we move to trustless decentralised digital cash like Bitcoin. Most of us who were in favour of that have given up at this point.
Government controlled digital money might just be the least worst option we have at this point.
Every single bank you have an account with already has to keep track of know-your-customer information. It's not like the fact that there's a centralized digital currency will give the government more control over you than not. The government can simply tell the banks to hold your assets, put you on a list that prevents payments providers to service you, etc.
The digital currency won't make any of that worse.
The good thing about digital currencies is that'll actually take power away from commercial banks. Right now you need to go through someone like Barclays, HSBC, etc, to get your money. CBDC actually lets you keep your balance directly with the government ledger and avoid relying on banks for everything. This is a good thing.
Beware that commercial banks are obviously opposed to this and will be very vocal about it.
* money that is programmed to be returned to the bank unless it is spent by X time
* money that is programmed to only be spent on certain goods or services
* high barriers to entry for businesses who want to allow money to be spent with them
* unaccountable/summary de-monetisation of persons and businesses on the whim of a government
* universal credit/benefits being issued as CBDC instead of fiat currency, creating a two-tier society where only the rich get access to fiat
* money that can have its spending and issuing rules changed quickly and easily by the current government of the day
This is basically a rationing system, like the olden days in China and the Soviet Union, where it wasn't enough to have money, you also needed a ration coupon to buy the good. Everything was rationed not just food, but bolts of clothes, consumer goods of any type, electronics (if you were fortunate enough to be able to afford it).
In this way the regime controlled scarcity and ensured loyalty and favoritism by awarding special rations and coupons for those who uphold the correct ideology and "meritorious labor". Each month your work unit issued a new ration book for the month that is based on your families' allotment of grains, cooking oil, clothing, soap, etc. If you are being a bad boy and you don't get your ration book for the month, you can't buy the goods in the state supply shop and have to go the black market.
Thus pure money wasn't good enough to live well or even to survive in those systems - one needed connections and access and the authorities can cancel your access at any time.
That is what a CBDC has the potential to evolve to and what worries me - a digital ration book. If all a CBDC is is digital cash, then we already have that system (Visa, e-payments, etc) and things won't change much but if a CBDC is a programmable form of money that can be disabled, inflated at will, turned off, or only allowed to buy certain goods - then there is no limit to the amount of tyranny that will be on hand. In a free country common people will not and should not accept it.
It has taken me a while today to get my head round this, but no we don't have digital cash.
Visa, e-payments etc. are all claims on financial institutions (banks, payment providers etc.). Those banks then indirectly have a claim on the Central Bank currency for us.
The only thing that gives private individuals a direct claim on CB currency is cash, which is increasingly less a part of society. This is the Bank of England (potentially) empowering private individuals and making us less beholden to banks.
All deposit takers in the U.K. are agents of the Bank.
Justifying extensions of government power with "but they can already do that" is cowardice at best and disingenuous at worst.
Famously, credit cards prevented microtransactions from ever being a thing, and may have very well lead to the ad dystopia we now live in. Insisting on taking a % cut of every transaction, and not allowing small transactions to occur, has dramatically limited business models across a multitude of industries.
Imagine going back to 1999, before clickbait journalism, when newspapers were incredibly well staffed with fact checkers and when long form journalists could easily spend months upon months on a single article.
Now instead of forcing a race to the bottom of ads and needing to get as many eyeballs as possible, imagine if it was even possible to experiment with a 5 cent per article view microtransaction.
Reddit and Twitch have both shown that users are very willing to invest in microtransaction ecosystems for large enough content platforms.
Saying Visa is the same thing as digital cash is rather inaccurate!
Are those examples we want to emulate in broader society though? At various points in my life, I have used both of those services extensively. I have never spent money on Reddit, despite being a registered user for 12+ years. I lurked for a year or two at least before creating an account.
On Twitch, I did have a free Prime sub that I would use, but I never spent any more on the service. I'm admittedly behind on the meta now, but is it even possible to give a streamer 1 "bit"? Or is there a minimum requirement of 10 or 50 bits? When I watch streams, I see some people donate with bits, but it seems like a way to save the user from making multiple purchases in a row, rather than a new paradigm of wealth transfer. "Hey, I'm gonna buy 500 bits now and donate 50 per stream" as opposed to needing to pull out the credit card on streamlabs or paypal 5 times a week.
Gringos don't know how good they've had it.
Quick note that regular money works like this, although you might not realize this if you grew up in the USA since afaik it has never happened here. Governments re-issue all the money quite often. UK did it in 1971. India did it in 2016. It happened when the Euro was launched.
This is one of the main reasons why the US dollar has been the de facto reserve currency.
At least that was the state of affairs until 2008. Since then the system is more or less in decay, at least by standards which where held before.
The rest of it already exists for normal money. Tyrannical control over finance isn't a property of a digital currency, it's a property of the government. Your causality is backwards. A bad government will do that whether they have a digital currency or not, and a digital currency has no moral properties as it's just a tool.
Whether a digital currency makes it easier at the margin to oppress people, I don't think it does. You can imagine how many headaches an imperfect implementation could cause.
If the digital currency is so restricted that people would rather use cash, it will death spiral to zero as merchants who accept it can't trade it for full value to others. The only way around that would be for the govt to backstop it and trade 1:1 with cash, which would defeat the purpose of the restrictions.
but all these could be used by a government to influence the voter behaviour such that they stay in power forever, China style.
you are ready for communism.
You're clearly convinced that governments slide inevitably towards authoritarianism and can only be prevented from doing so by practically restricting their powers, but it's a rather backwards way of thinking about things. An authoritarian government takes whatever powers it wants and wipes its arse with any rules that have been written to supposedly prevent it. If an authoritarian government thinks a CBDC will be useful it can just make one. Not that it would have to, because the government's existing powers are already sufficient to implement all the nefarious schemes people are worrying about in this thread.
The way to avoid the threat of an authoritarian government is to have a fair and well run electoral system, a healthy national political dialogue and a well educated population (not that these things are easy), not to assume the government is inevitably going to go bad and block it from implementing useful policies in a futile attempt to curtail the powers of the dictatorship you've convinced yourself it will one day become.
The solution to that logic is to abolish everything.
The US food stamp system does this.
> unaccountable/summary de-monetisation of persons and businesses on the whim of a government
The US police seizure system does this; I submit that if this happens you have a serious rule-of-law problem and already, or are about to, have bigger problems.
> universal credit/benefits being issued as CBDC instead of fiat currency, creating a two-tier society where only the rich get access to fiat
This implies nonconvertibility?
Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...
The US police seizure system already is a serious rule-of-law problem due to lack of accountability.
This is A) a correct, valid worry and B) isomorphic to the "surveillance" thing, in the sense that the surveillance is just a means to an end. They mostly want the surveillance in order to demonetise the outgroup (however that outgroup is defined).
We already have this: if you don't use your budget by xyz date, you lose it
> money that is programmed to only be spent on certain goods or services
Food stamps can only be spent on food, you must meet specific criteria for tax credits, etc.
> high barriers to entry for businesses who want to allow money to be spent with them
Some businesses will absolutely not take your money without extensive KYC already
> unaccountable/summary de-monetisation of persons and businesses on the whim of a government
Banks already arbitrarily shut down bank accounts with no recourse.
> universal credit/benefits being issued as CBDC instead of fiat currency, creating a two-tier society where only the rich get access to fiat
The whole point of money is that it's the common means of exchange, it's not very useful as money if only some people use it.
> money that can have its spending and issuing rules changed quickly and easily by the current government of the day
That's already the case today.
It doesn't apply to cash or my bank account. I do not want that to change. I will not support a tool that would enable this.
> Food stamps can only be spent on food
Those are not cash. Those are effectively gift cards for use at a grocery store.
> you must meet specific criteria for tax credits, etc.
Yet the tax credit is paid in cash. You can do with it as you will once you receive it. I will not support a tool that would change that.
> Some businesses will absolutely not take your money without extensive KYC already
The fact that a problem already exists is not an argument in support of making it worse.
> Banks already arbitrarily shut down bank accounts with no recourse.
Once again that doesn't justify actively making things worse.
> The whole point of money is that it's the common means of exchange, it's not very useful as money if only some people use it.
Many countries apply controls when converting to or from foreign currency. China in particular is known for this. Does that mean that their currency isn't useful to the people who live there? If the poor aren't permitted access to traditional cash they would have no choice but to use the CBDC whether they wanted to or not. At least aside from outright bartering, which is even less flexible.
> > money that can have its spending and issuing rules changed quickly and easily by the current government of the day
> That's already the case today.
No, from the perspective of the individual it absolutely is not. If I have US cash or even a balance in a bank account in the US the government cannot "quickly and easily" modify the rules by which I can spend it. Particularly for paper cash their only options seem to be either to outlaw a particular sort of transaction and hope the police can enforce that (doesn't work, see drugs) or reissue the currency to force me to exchange it for something that they have more control over such as a CBDC.
It will certainly reducing muggings and thefts if this activity took place.
That image and bank note serial number can then be uploaded to a central, database where bank notes in various currency's can be geolocated and its movements tracked. You device and smartphone can equally form a distributed blockchain database by having your device share the data with those devices around them.
When a bank note leaves someone's possession, the app can be notified of a possession change where the currency then enter's a dark web like state unless the bank note movement is into the possession of someone else using said app.
Whether the banks and currency printers want to get on board with such idea in order to complete the introduction and retirement of bank notes in order to help build confidence in the currency, remains to be seen.
Of course, if banks and currency printers dont want to get onboard with this public track and trace of the public's currency, then are they reducing confidence in the currency, in effect weakening or expiring the currency just like we see in this white paper and in China crypto currency experiments.
Afterall, no one person can track and trace the bank notes that pass through their hands, we dont know just how bad counterfeiting of bank notes is. With todays tech, namely smartphones and an app, it would be possible to restore even increase confidence in a currency in a totally passive aggressive way!
This would also be a way to decentralise existing currency's in todays form, as this app and photo of the bank serial numbers is like cryptocurrency miners and every photo becomes an entry in a Blockchain which would make it hard for any AI to replicate and highlight any physical currency counterfeiters.
In other words, the public could become the pseudo cryptocurrency miners, and their participation would strengthen the currency they use. This way, the many benefits cited by the central planners like the Blank of England as done here, can be applied within days of this idea being made public.
How quickly could you undermine other currency's like the Dollar or Euro if a population were to suddenly adopt this change of behaviour?
Most people only ever have in their possession a fraction of the bank notes supposedly in circulation, and these officially circulated bank notes are only a fraction of the total money that exists in a currency. If you are familiar with this infographic https://traversals.com/blog/surface-web/ you should understand that the serial number on your bank note is just the Surface Web, and that banks and central planners are the dark web!
No one has a bank account which shows the bank note serial numbers entering or leaving your possession and no currency provides a means to currently track and trace all currency! Arguably its one giant fraud operating in plain sight!
Why do people trust this situation?
Everything else you state can already be done with the existing banking system.
How do you think fraud stops work?
I at least believe that governments have higher barrier than private entities that have already provably done this.
Of course it does. There is no central registry of who has accounts where and what they’re doing. Records are maintained at the edge. Modern banking is topologically decentralised.
CBDC opens central bank money to the masses. (It isn’t a new idea [1][2].) It has advantages. One disadvantage is it ports over blockchain’s centralised record-keeping. Running a search on everyone who purchased from or donated to X between such and such dates changes from a record request to every bank, credit card company and P2P app that did business with X, a request process which takes time, may cross jurisdictions, tends to require X’s coöperation, and is lossy with some payment methods, into a database lookup.
The quiet power grab is this being, with virtually zero debate, a central bank’s digital currency versus e.g. an independent public bank’s.
[1] https://rooseveltinstitute.org/wp-content/uploads/2021/08/GD...
[2] https://www.investopedia.com/what-is-postal-banking-5217341
And any future authoritarian regime will of course not play by today's rules, and put the opposition under financial scrutiny within a day, and simply starve the people it doesn't like.
I hate banks, but I think I like them better than this option.
Or current authoritarian regimes. We have already seen protesters in Canada have their bank accounts frozen by edicts from the government without any sort of trial or legal process. Truly frightening to think what they would do in a cashless society (which is the ultimate goal of centralized digital currency) to coerce all sorts of desired "behavior".
Every party knows something about me, but nobody knows enough for me to be worried. The current system is pretty good at protecting my privacy, especially given how primitive it all is.
Anti money laundering regulations allow the authorities to gather a full picture if they need to.
Including any accountants or financial or legal professionals you interact with - all of whom are required by law to report any activity they consider suspicious.
Also CDBCs are programmable, Programmable money is a dangerous tool in my opinion. The State could thoroughly control everything you could do with money (e.g. carbon allowances, money that expires etc.), money would literally become vouchers controlled by the government. Pure dystopia.
Anyone who has ever tried reconciling separate accounts knows how hard it is. To have it all in one account, and therefore queryable from one single API, is an absolute step function in the direction of surveillance.
Just think about how taboo it is to ask someone how much they make/have, and think about why it's taboo. Financial information is some of the most private information there is. Before you know it, with all of it under one API (or in one account), Equifax will release a product gatekeeping access to this API to "verify" income or assets, but in a far more powerful way than they already do.
I don't see how having the govt foot the unprofitable part of the whole thing for no clear benefit for them (govt already know everything, kinda) will help the financial system at all.
https://www.federalreserve.gov/econres/feds/the-macroeconomi...
Money needs to be as far from politics as possible, a central digital coin is the opposite.
"This is a good thing" is a very strange conclusion. Yes, let's shrink the private economy and make people deal directly with the government for the most basic unit of commerce, money. I can't possibly see how this could go wrong.
I'm sure it will not fail right away, and there will be a sustained period of benefit. But I don't think it's worth the longer-term risk.
The assumption that CBDC is a good idea because the government is always benevolent and does what's best for the people is incorrect, as demonstrated by the horrible financial mismanagement in the recent 20 years.
The magnanimously negative impact of Brexit on the kingdom coupled with recent outlandishly irresponsible neoliberal monetary policy have put the UK in a precarious situation where member nations are unironically reconsidering membership. Scotland last november gave it serious consideration, and in 2021 Wales seemed poised to give it a go as well. the alternative these states are electing is the EU and if such a choice were to be made it would surely spell disaster for England.
Brexit has also created an unnecessary burden on corporations with a euro presence in that all must now be renegotiated at significant expense. The easiest path is to simply tell this relatively small kingdom of 67 million to trade only in euros, and this in turn would further devalue the pound sterling.
the "Digital Sterling" serves a twofold purpose: to distract from the slow rolling catastrophe of Brexit and other hardline neoliberal policies by offering something that appears to be progress, and as a desperate effort to court business and commerce back to the kingdom.
magnanimous (adjective)
1. Highly moral, especially in showing kindness or forgiveness, as in overlooking insults or not seeking revenge.
2. Great of mind, elevated in soul or in sentiment, raised above what is low, mean, or ungenerous of lofty and courageous spirit.
3. Dictated by or exhibiting nobleness of soul; honorable; noble; not selfish.
(The American Heritage® Dictionary of the English Language, 5th Edition.)
I understand the argument but I suspect in practice you will be less susceptible to the predations of your bank and substantially more susceptible to the predations of your government.
At which point you should ask yourself, is it easier for me to change my bank or my government?
Also KYC is definitely not bothering people that are actually laundering the largest volumes of money. See https://violationtracker.goodjobsfirst.org/industry/financia...
Why is a CBDC necessary for that?
Anyway, I think governments could regulate better to make payments more of a public infrastructure type deal. The banks will still make a stack of cash on all the other things they do.
Facebook’s goal is mostly to make money. Facebook will not put you in jail, or fine you.
As bad as you think these companies are, they never committed war, crimes or genocides.
There is a massive difference between being tracked by states (who have a monopoly on violence and terrible track records) and advertising firms.
https://www.amnesty.org/en/latest/news/2022/09/myanmar-faceb...
There are no laws in existance to protect access to currency and if it is successful there will be no way to exercise resistance should government cease to be answerable to the people.
This isn't quite true. Most concern is about how mundane transactions are tracked. Things like how your grandma giving you $5 could now be tracked. Obviously this won't be an issue if physical cash still exists, but it would if that was eliminated. The other aspect of a digital currency is that it allows for much finer detailed tracking. High precision. This is still useful in our ever increasingly surveilled world.
I don't know how the UK works, but in the US banks don't need to report when the inflow/outflow is <$10k. Meaning that for most people Venmo could choose not to report to the IRS for them (no idea if they do or not, but if they do, another business model could not) because their annual transactions don't exceed $10k. So even digitally, your small standard transactions aren't (necessarily) being tracked. This could even include things like tips for servers. Of course, the Fed has recently been pushing for this threshold to come down to $600[0] with an explanation that this targets the rich who have multiple bank accounts that are amassing millions of untaxed income.
I am actually for digital currencies, but I personally think we need to make them like digital cash. That is, they use ZKP transactions with minimal metadata to produce as anonymous transactions as possible. Surveillance capitalism and surveillance states have been a mistake. We had centuries of tracking commerce with physical cash and have learned a lot about how to catch fraud and theft. While anonymous payments can enable some more theft I don't personally believe that any government needs to specifically track what an individual person is spending their money on.As a data nerd, I'd be perfectly fine if we had some homomorphic encryption that allowed for some anonymized analysis on how aggregates of people are spending their money but I still don't think we should be tracking citizens.
[0] https://www.cbsnews.com/news/irs-bank-account-update-change-...
This is completely wrong. Centralized, programmable digital currency gives the government complete control over how, when and where you are allowed to spend your own money. Its implementation would be the most dystopian possible development.
Because Economics has never really come to grips with how the banking system actually works, there has long been a movement there to replaced the current monetary system, with something that doesn't create and destroy money all the time. Amongst other things, I have seen economists advocate for this, because they believe it would mean that their mathematical models would work properly on the real economy.
It is hard to know what the actual economic impact would be, but it is to put it mildly, a little irresponsible to experiment with the production system like this.
It is, though it’s far from unprecedented. Postal banking was a public banking option [1], albeit with balance sheet separation between the monetary authority and public bank.
> Economics has never really come to grips with how the banking system actually works
This is nonsense. The internet and public having misconceptions about something doesn’t mean we don’t understand it.
[1] https://www.investopedia.com/what-is-postal-banking-5217341
Essentially with respect to the banking system, economics has built on a false understanding of how it works (fundamentally the incorrect claim that banks lend out their depositors funds), and never gone back to fix that with a correct understanding. So we have the situation that the Bank of England published a memo reiterating how that deposit money is created through lending about 8 years ago now, but there are still papers being published with the incorrect understanding as a basis.
And now we have the Bank of England essentially proposing to "solve" that problem by introducing a digital form of asset cash. It will be very interesting to see what goes on the other side of the balance sheet for that.
To an extent that 2022 Noble prize in Economic dished out this same trope!
Not sure what you mean by "fundamentally incorrect"? If your bank only has $100 in deposits, you simply can't loan out $101. The money multiplier effect occurs because the lent out money is deposited at another bank rather than stuffed under a mattress.
Why not? I think the assumption here is that money is like a physical commodity. If we were talking about apples then of course your statement would be correct. But we're not.
When a bank "lends" you $100 it just creates two entries: one in your current account that says +$100 and one in your loan account that says -$100. The latter is called a liability. There is nothing physical. In fact, the only thing that "exists" are the entries in the ledger. The money is completely abstract and appears only between the time the loan was created and the loan being paid back.
Of course it can. It creates the loan. Capital requirements dictate it must borrow some amount at the end of the day. But when Chase lends you money, it’s literally just increasing numbers in your account.
Banks lend at certain multiples of assets, 10:1.
Money creation takes place here, not as imagined at the treasury.
Typical arguments against this always end up in "they do lend out their depositors funds" with extra steps.
deposits go to their balance sheets as assets and a liability towards the depositor. Banks do business with their assets and some of that business might put their balance sheet in a position where they can't or won't honor their debt to depositors. At that point whether they "lent out depositor's funds" is philosophical.
[debit loan, credit deposit]
Which creates a loan instrument on the asset side, and creates a matching deposit in the borrower's account. When the borrower repays capital on the loan, the operation is reversed.
Old time banks would have a roughly 1:1 ratio of loans to deposits, these days because banks are also borrowing from other entities, that can ratio can get a bit squirrel.
Here you go: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
It’s a terrific memo. But it was groundbreaking as a public relations piece. Not a theoretical work.
The banking system and the way money really works started being researched quite recently (late 2000s). They are some specialists, but a lot of economists (and especially those you can find on TV or read in the generalist press, but not only) are still stuck on the pre-2000 vision where the money banks lend is from deposits.
I think it’s also related to the lack of trained political scientists in the crypto movement. A first year undergrad is taught that real political power comes from whomever has a monopoly on violence. In this light crypto was always doomed to fail in this way. It had little to no affect on the underlying real power. It only worked 1 later up (monetary supply / taxation / etc.).
> The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
* As noted below, defensive violence against illegitimate initiators of violence [<- edit]
People working on Bitcoin are very aware of this and it has been extensively discussed this in the last 10 years and taken into account even by Satoshi
You'd imagine legal protection of this should exist just the same as it exists for assets now. Eg if you get a speeding fine you are contesting (or something hing more nefarious, say you're a journalist reporting in corrupt government) the state can[not] just confiscate your property without a court decision.
I was about to write "cannot" but then remembered Civil Forfeiture in the US. But my basic point is, I think most.l likely this wouldn't change things too much in practice.
I still don't much like them.
Now a monopoly controlled by the monetary authority, also for all payments:
You are significantly underestimating how much of the day-to-day economy happens in "under the table" cash transactions (doesn't even have to be cash, some unsophisticated casino-chip setup like Venmo or Cashapp works as well) that wouldn't stand up to the kind of scrutiny afforded by a CBDC system.
This might still be true for some countries, but most of us are already in a world where paper money is a “just in case” artifact and the gov could trace every single monetary transaction in the last 10 years.
The real fight isn’t on clinging to legacy systems, but to get safeguards baked in the new systems and have governments that care a minimum about their citizens.
I mean, you’ll never win again your gov. going full berserk, or at what price.
No. Also, I see CBDCs as a further step along this trajectory. Even more control. Even more granularity.
>The real fight isn’t on clinging to legacy systems, but to get safeguards baked in the new systems and have governments that care a minimum about their citizens.
I agree. Though I'm afraid human psychology is not compatible with the idea of "safeguards". As long as there is a 0.0000001% chance that this will help catch some pedophile or drug cartel, I bet there won't be widespread push for safeguards. Much like how there isn't any with internet surveillance or facial recognition in public spaces.
Naturally you might be asking, so what do I propose to solve this. To which I answer: Nothing. I don't really see a way out of the hole we are digging right now.
There are a couple of chaumian mint systems in development in the Bitcoin ecosystem.
Cashu: https://github.com/cashubtc/cashu Fedminit: https://fedimint.org
In Cashu, a mint is a single custodian, while Fedimint is designed around a multiple federated mints in a multisig. Both issue e-tokens signed with blind signatures. Both of them also integrate with the Lightning network, so users of the minted cash can make use of the rest of Bitcoin ecosystem for payments.
I mean, banking is digital first and cash second.
Also, programmable money already exists and is called food stamps in the USA.
Only if you think in a binary exists/doesnt't exist way. With digital payments first and cash never, this could be taken much further.
I think the main benefits would be if we could get out of the VISA and Mastercard duopoly, and the requirement to settle trades in USD in the future.
Any system backed by math seems to me to be strictly better than any system which is not backed by math. Legacy banking infrastructure is a dangerous mess, and needs to die. To me, the acceptance of CBDCs is an admission that the old ways are failing, and a crypto backed economy is the future. CBDCs will still need to compete with crypto assets already in existence, but at least now everything can speak the same language.
Firstly, they start off by saying that they don't think it's currently necessary and that they are just looking to the future. They then talk about the current state of affairs with more transactions being made digitally and more private entities offering some sort of online wallet. Most of these entities are not British in origin and they state that if the situation were to arise where a majority of the countries "cash" transactions were controlled by a foreign entity then this could constitute a security risk. Now, I am a very long way from being a flag waving nationalist but even I can see the sense in that.
Secondly, their proposal look fairly reasonable to me. I may be misreading it horribly but as far as I can tell the BoE is proposing to be an anonymous transaction layer. The diagram specifically states that they will not have any personal information associated with the wallet. It looks like the BoE would just hold an anonymous wallet with a GUID and a value. The PIPs have your user details and GUID. When you make a payment from your wallet to some other wallet the PIP just sends a request to the BoE to transfer a sum from one GUID to another and the BoE never receives any information on the payer and payee.
Because of this, it will be pretty difficult for the government to prevent any particular person making a payment, or to control how someone makes a payment. There are a huge number of private entities that will have the necessary status to get clearance to access the API, I am sure. Can you imagine the UK government trying to bully hundreds, maybe thousands of companies - some not based in the UK - into preventing payments to one person; and they would have to cover all entities because otherwise the person being targeted could just change wallet providers.
It could still potentially turn bad, but it looks to my (admittedly not highly experienced eye) that the BoE is trying to design a system that is reasonably resilient to the type of tampering and control that many people fear.
I am pushing 50 and I just can't imagine I live to see the day I can't get cash from the bank when we still have absolutely worthless pennies in circulation. This is such a fundamental change to money and banking I just don't see it being widely adopted.
People who lived in Warsaw pact countries where you could only buy meat with a "ticket" would disagree with this. There is a very real desire in the ruling class to be this invasive.
The gov. vs the individual is an uneven fight. The same cannot be said about the gov. vs the people.
And I don't see worries too much as most of the bad things can already be done, or simply legislated on existing institutions by governments. Nothing actually stops at least with digital money from these things being done.
What I'm worried about are the new proposals and the gradual erosion of cash as an escape hatch.
Is that an example of a totalitarian dystopia? Not really, but it's not "the land of the free", either. I'm thankful that technology like BTC (or better yet, Monero) exists so that this kind of bullshit is merely an inconvenience and not a blocker.
How is it that Central Bank crypto will lead to a totalitarian dystopia, while BitCoin, Eth, Dog Coin, FTX coin etc are libertarian projects that will save the world?
And maybe (dont kill me for this) some people need an adult in the room on occasions.
Maybe (again, hold yourself back) money given by the state should be spent in supermarkets, not on disco biscuits. A degree of control over that doesn't sound bad at all.
To some extent I agree. The problem is that historically the limit of this state control was technology itself. Except now we are far too advanced to keep technology as this limit.
Money given by the state is an entirely different thing. If you need the state's money, you are ought to play by it's rules.
What I'm worried about is the state meddling with personal financials with pinpoint accuracy.
Sure, so it seems reasonable to prevent people spending benefits on drugs. However is there not a slippery slope towards preventing people buying (say) unhealthy food?
I can imagine some 'luxury money' that can be spent on anything and 'basic money' that you can't use to buy a pack of crisps or a bar of chocolate, only carrots and apples...
> Embedded finance is an innovation that could shape the retail payments experience. This is where financial services, and in particular payments, are integrated into another industry’s service, function or feature. Examples include, ‘one-click’ purchases of goods via social media platforms, ‘in-game’ payments or, in the future, marketplaces and transactions in the metaverse.
Does the author question that or realise what they're writing at all, or is it just a case of researching and regurgitating buzzwords? 'The metaverse'... it should be a defined term, and then removed from the document because they realise it doesn't mean anything, or that you can't define it in a sensible way that '[future] transactions in the metaverse' isn't just me shopping on amazon.co.uk today.
I do slightly envy working on something with 3y of technical design (after a year of research to give it the go ahead) before anything gets built though. Perhaps that's too much, but a middle ground, or I envy some aspects of it.
From what I've seen so far, 'shopping in the Metaverse' means 'like Amazon, but in 3D!'. So, filling a virtual shopping cart (with virtual wonky wheel?) with virtual items in VR...
I could be wrong, but like many things in a Metaverse, it seems not just pointless but actively worse than the experience of '2D' shopping in a normal website.
plus amazing fraud protection
i’m so much more comfortable buying from random online websites because visa has my back
yes i know we collectively play 2.5% for that privilege, but seems worth it to me.
"At least 50% must be spent in your local district of your '15 minute city'. Purchases of alcohol, meat, and fossil fuels are prohibited. Unspent currency expires after 30 days and cannot be rolled over to the next month."
"Only senior management and above get paid in 'unrestricted' currency."
Food stamps via EBT...
As physical cash goes away the digital pound is meant to plug that gap, plus a load of other things I probably don't understand.
Just wait and see what happens to your life if the state decides it doesn't like you.
Ah. I see where this is going now.
In the USA at least, it can be difficult to get a bank account if you don't have much money. And since companies don't like writing checks, people working jobs at the lower end of the economic latter have to get special "paycheck cards" that extract relatively large fees for the service they offer.
Imagine making poverty wages, yet 2-5% of your paycheck is taken from you as a fee for not having a bank account (which you don't have because you make poverty wages).
Two largest groups of users will be:
1. People who don’t have access to pound bank accounts (folks who live abroad).
2. People who effectively give all this control and info away already by not using cash ever.
Note that we are in an economic battle/war right now with regards to crypto/digital currency in developing countries. The digital RMB, digital pound, digital USD, and perhaps others will be an efficient way for the currency distributors to influence/control foreign populations.
It wouldn’t surprise me if the west wins most of these battles simply by offering colonial digital currency with which folks can conduct transactions.
Bitcoin and most other cryptos are much worse, because their blockchains are public. Everyone can see every transaction. No warrants required or anything like that.
There’s no such thing as a private cryptocurrency.
Uncensorability is not an important characteristic of cryptocurrencies.
CBDCs will only be used by democratic governments.
Governments considered democratic always follow the letter and spirit of their own laws.
These are all assumptions. The former is safe. The latter, unlikely. (Particularly in the U.K.)
What I'm worrying will come out of this is pound-on-blockchain with no real effort to serve the currently-unbanked.
Also worth pointing out that the Pound (like every major fiat currency) is already digital: my bank account is stored in a computer, my payments are all electronic. Sure we still have paper notes but banks aren't backing their deposits with a big stack of those in a vault anywhere.
Izabella Kaminska (ex FT-journalist) had a good take on this on her podcast or website [1, 2] (I forget which).
If this is for _all_ unbanked individuals, then it must also include people banks don't want anything to do with right now, like criminals and other people who don't currently pass KYC or AML checks.
[1] https://www.youtube.com/@theblindspotpodcast [2] https://the-blindspot.com/
Edit: a word
Sounds consistent with the view of Britain as an unregulated financial casino that is so dear to most brexiters.
That's the intention yes
> Also worth pointing out that the Pound (like every major fiat currency) is already digital: my bank account is stored in a computer, my payments are all electronic. Sure we still have paper notes but banks aren't backing their deposits with a big stack of those in a vault anywhere.
They are drawing a distinction between private money - issued by banks which may or may not like you - and public money £20 on paper which anyone can hold. Digital pound = public money.
What happens when it becomes popular for the government not to like you because X is in vogue?
The equivalent service is widely used in Scandinavia and some other countries. I can pay a friend or make a purchase in a small shop (or a big one) without needing to know bank account numbers.
I regularly send money from my banking app to my partners and its instantaneous.
This article is from 2019: https://www.theguardian.com/money/2019/apr/22/britons-withou...
So I started covering the checkout cameras and covering my face in supermarkets, but everyone thinks I'm overreacting. I guess I don't really get it. Am I suppose to be fine with this? This isn't some passive CCTV system, it's literally a camera pointed at my face to identify me christ sake.
And this stuff happens to me a lot here... I often refuse to give email addresses and number phones, but I get treated as if I'm the one being obstructive. The only exception seems to be if I'm talking about Facebook or Google, then people suddenly seem to care about their privacy, but in the real world there's no regard for privacy at all.
Is it this system? It sounds horrific. https://www.codastory.com/authoritarian-tech/uk-supermarket-...
I do tend to agree with you, but adsurd it a little hyperbolic.
CBDC: - restricted use, max 20k savings - some transactions might be blocked - linked to your identity/credit score - validity might expire (not durable) - a privacy disaster, centralized data will get hacked - total governance and corporate surveillance of your transactions - supply changed arbitrarily - now ownership, account permissioned/granted
BITCOIN: - no restrictions, unlimited saving - censorship resistant - not linked with any personal info - no expiration, ultra durable - no personal data stored, can't get hacked - no surveillance if done right - supply is fixed and issuance schedule auditable - true ownership
Oh, bitcoin cannot be banned?
For a game that was so prophetic on all other aspects of ethics and AI and technological develoments that followed, particularly in terms of surveillance, a currency free from transaction-monitoring/intervention was a very big blind spot in their dystopian vision. I wonder if this simply never occurred to Sheldon Pacotti, or if he specifically believee we'd manage to somehow "liberate" money by then ...
This could also be gradually smuggled in under ambiguous wording and mission-creep. And then even one major event that made the headlines "that we had the technology to stop!", and which occupied the public consciousness could do a lot to bring people around to the idea that maybe the government should be doing more than just handling payments, and thus changes could be made without announcement once public sentiment had shifted towards tolerating more "proactive safeguarding".
Search terms:
precrime
predictive policing
predictive analysis
fraud detection
behavioral biometrics
Eagle Eye clip on profiles, https://youtube.com/watch?v=1XQgaqOlEIc
If this CBDC can process payments within a few seconds or minutes (some Blockchains are able to) that's also a huge win for merchants as that means they actually have the funds they need to fulfill orders rather than relying on credit (which also costs $) and having to wait days for all customer's funds to be deposited.
Rapid settling times help cut down on fraud - which itself is very costly to businesses (the cost of which is carried by the consumer).
So by switching to a quickly settling CBDC, businesses can save time and money - savings that can be passed to consumers. Now, whether they ever do that is another question.
Control. If you're of the mindset that there is an upper-class and a lower-class, you're incentivized to create a form of money that makes both permanent. This prevents competition, generational wealth transfer, and guarantees infinite, cheap obedient labor.
The movie Elysium is a great caricature of where this will lead.
Individuals could with fairly minimal technical changes get central bank accounts here and now. That would already change the universe: Currently all electronic money is private bank money, only as good as the credit of said private entity, which in turn depends on the types of risks it might be taking while you waste your time on HN. With CB accounts some electronic money is sovereign money (like cash). It may get inflated but it will never default. Already that simple "savings" window can upend banking as we now it. Individuals transacting in sovereign money and any other features are all on top of this.
The worry is that it would be a substitute/replacement for physical cash, which would mean a massive enabler of private and unregulated economic interaction being eliminated from an already too surveilled/centralized/rigid society.
On the other hand: I am 100% sure that the UK govt will reimplement these hurdles and add their own.
PayPal is legally a bank in the EU and is regulated as such.
https://www.bankofengland.co.uk/-/media/boe/files/paper/2023...
Blockchain technology, which underpins many cryptoassets (for example Bitcoin) also
represents a major innovation. This introduced digital assets supported and distributed
in a peer-to-peer fashion, backed by cryptography alone and stored on an immutable
distributed ledger.
Smart contracts automate business logic based on pre-determined terms and
conditions. The concept pre-dates the emergence of Blockchain and is not exclusive to
any specific technology, but their use has been popularised recently by permissionless
blockchain technologies such as Ethereum.
Developments in smart contracts have led a trend towards 24/7, ‘always on’, automated
markets and products, and a wider world of decentralised finance, or ‘DeFi’. DeFi
applications use a combination of these technologies, including blockchain and smart
contracts, to enable users to buy, swap...
https://www.bankofengland.co.uk/-/media/boe/files/paper/2023...
So there's no information being conveyed here by saying "lets have digital pounds". Presumably there's a proposal to add or change something, but you've got to open up the PDF and start skimming to even get a hint of it, because the linked headline and summary is just meaningless.
Since the pound is already digital, the obvious path forward is some mixture of a government provided payment app, and/or government forced interoperability between existing payment apps, possibly augmented by government provided bank accounts either for the unbanked or possibly for everyone (cf "postal banking" and "narrow banking").
Looking at the PDF they seem(?) to have something fairly different in mind, but they do a terrible job of explaining why. Or what exactly they're proposing.
It's just exhausting trying to engage with a proposal this vapourous.
Previous CBDC threads: https://news.ycombinator.com/item?id=30634245 (2022) & https://news.ycombinator.com/item?id=27805709 (2021)
Presumably the change in question has to be to stop printing cash and minting coins and forbid cash transactions. There may be some cryptocurrency-like features too (sans anonymity), but I imagine that credit card processors won't like that.
You don't need a new currency to allow removal of cash.
Since the policies of 2008, bank IOUs and central bank IOUs are basically the same since the central bank backs up all the other banks. 100 dollars held at Bank of America as "this is how much the bank owes me" is functionally the same as "this is how much the fed owes me"
In theory, private banks would've created a diverse ecosystem where bad or incompetent banks would get washed out leading to a stronger and more efficient private banking sector. In practice, they all needed to be saved. The resulting rules like lending standards coupled with existing regulation like KYC means that banks already act like arms of the central bank.
It's possible a CBDC just cuts out the middlemen so there could be benefits like lower interest rates on loans. There is concern with privacy and centralization of course, but that's not specific to the CBDC idea or tech and has already existed in a form for some time (e.g. canada trucking bank freezes)
Aside from obvious benefits, it would also ensure CBDC implementations are really convenient to use, and any issues are resolved pronto.
(For those who don't follow British slang, to pound or give someone a pounding, I'll leave it to your imagination)
https://bitinfocharts.com/comparison/size-btc.html#1y
And before anyone says "lightning network" realize that that's like playing catch in your back yard and thinking you're going to pad your major league baseball lifetime stats.
You could also say it's like passing IOUs back and forth with a friend.
Money/Currency rules are the same.
Access to network is the same (customers banks use banks apps)
CDBCs are about saving lives, and the planet.
/s