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Not all CBDCs are created equal
Central Bank Digital Currencies... Who wants them? Who needs them? Will a royal endorsement change any minds?
The specter of the Central Bank Digital Currency (CBDC) continues to evoke much discussion and speculation. A sign of the times, the Dutch Tweede Kamer (Lower House) held a parliamentary debate on the subject at end of November. As was the case with the potential introduction of the European digital ID, likewise recently debated by the Dutch parliamentarians, it was a clear indication that the issue, which might have been only of interest to cyber activists and crypto adepts just a few short years ago, is now decidedly a mainstream concern.
Within the Tweede Kamer, Mahir Alkaya, author of a recent book on the topic, Van wie wordt ons geld? (Who will own our money?), has taken on the role of parliamentary rapporteur on the matter. Inside and outside of parliament, he has been actively campaigning for more oversight over the European Central Bank’s project to develop a euro-based CBDC. A short time ago Alkaya took part in an hour-long interview on the popular BlckBx.tv alternative news site during which he highlighted some of the challenges he and his parliamentary colleagues face. Perhaps the most fundamental problem is simply that national parliaments within the euro zone are not given any say in the matter; they are not, in Davos-speak, considered stakeholders. “We can exert influence,” Alkaya observes ruefully, “but we have no real decision-making authority.”
The Tweede Kamer passed a motion declaring that anonymity must be maintained under a certain threshold (ie, €10,000), but the ECB has already rejected that on principle. Alkaya wants guarantees that the ECB won’t enable money programability (administrative restrictions on how you use your digital cash), and a prohibition of negative interest rates, but he doubts such restrictions would ever been permanently binding.
BlckBx host Flavio Pasquino asks Alkaya: What would be in it for us? One potential benefit: if a CBCD is implemented in parallel with the commercial banking system, it could then serve as a counterbalance to the later, keeping the whole system “more honest” (for this reason we also need to keep cash, he says). Problem is, the commercial banks want a piece of the action, and are hence incorporated within the ECB’s euro-based EBCD system. So that potential advantage disappears, leaving us with… zero potential benefits. Alkaya says for these reasons the Socialist Party opposes the new system; privacy and anonymity can never be guaranteed. He goes further to say that the SP believes the euro itself is untenable and they favor an orderly exit and a return to national currencies.
Meanwhile, the European Commission forges ahead; it is preparing a draft law to enable introduction of a EBCD that it will circulate among EU member states this spring. “We can debate it in the Tweede Kamer,” says Alkaya, “but we cannot veto it.”
During the interview they screened a brief two-minute clip of an interaction between Alkaya and Pepijn van Houwelingen of the right-populist, mordantly anti-EU Forum voor Democratie (FvD) party that took place during the parliamentary debate. Alkaya expresses his skepticism of the future of the euro. Van Houwelingen presses the point in a follow-up question and it appears that two parties share very similar viewpoints on the matter. FvD is generally not sympathetic to the contemporary “left” (to put it mildly) and pursues a jihad against what it regards as cultural marxism (a term I dislike but understand its origins), but here Van Houwelingen finds common ground with Alkaya precisely because the latter is not “cultural marxist”; he is representative of the traditional (pre-woke) Left which focused first and foremost on fundamental economic issues. Is there anything more fundamental than Who controls the financial system? and Who do bankers serve? These are issues which clearly cross ideological divides.
The ongoing debates surrounding CBDCs tend to center on the implications of introducing such a system on a society-wide scale, either alongside existing currencies, or, more controversially, replacing them. However, there are potential applications with more targeted use, namely cross-border commercial transactions. In this scenario, a CBDC would be used instead of SWIFT, the US-controlled inter-bank messaging system which has hitherto been the standard way of transferring funds internationally. By arbitrarily shutting off access to SWIFT to perceived adversaries, such as Russia, the US has weaponized the system; Russia, China, and the Global South have duly taken note and are planning CBDC-based systems as a potential alternative.
As Pepe Escobar reports in The Cradle:
The Central Banks of Iran and Russia are studying the adoption of a “stable coin” for foreign trade settlements, replacing the US dollar, the ruble and the rial. The crypto crowd is already […] mulling the pros and cons of a gold-backed central bank digital currency (CBDC) for trade that will be in fact impervious to the weaponized US dollar.
The really attractive issue here is that this gold-backed digital currency would be particularly effective in the Special Economic Zone (SEZ) of Astrakhan, in the Caspian Sea.
Astrakhan is the key Russian port participating in the International North South Transportation Corridor (INTSC), with Russia processing cargo travelling across Iran in merchant ships all the way to West Asia, Africa, the Indian Ocean and South Asia.
The success of the INSTC – progressively tied to a gold-backed CBDC – will largely hinge on whether scores of Asian, West Asian and African nations refuse to apply US-dictated sanctions on both Russia and Iran.
This is just one of various such schemes being considered. It is important to note that the issues concerning individual privacy and societal control that arise with retail deployment are not directly relevant here. If interbank CBDCs helps countries such as Russia, Iran, China, and many others establish a robust multipolar world without choke-points like SWIFT, this would be a good thing. In the coming years, we are likely to see various experimental systems deployed by various players for diverse purposes. There will be no single global CBDC under central control, as some people fear, even if the high-flying denizens of Davos may think it a wonderful idea in their cloistered imaginations.
Speaking of CBDCs and Davos, we had the spectacle of this past week of Holland’s Queen Máxima singing the praises of the CBDC at this year’s meeting:
You may have thought that European royals customarily devoted their energies to politically neutral causes with a high feel-good factor — you know, orphanages, animal shelters, that kind of thing — but that is so last century! Your 21st Century royal is leading the charge at the very cutting edge of DeFi technology! (That’s Distributed Finance for you squares.) This isn’t the first time that Máxima has broached the subject; a clip emerge of her several months ago campaigning for CBDCs, she sang a similar tune at Davos last year. Her marketing pitch isn’t that we need a CBDC; it’s that they do. Thoroughly modern Máxima’s White Man’s Burden is the “1.7 billion adults worldwide [who] still do not use bank or savings accounts, insurance, loans, pensions and digital payment methods” in what she refers to in investment-speak as emerging markets (WEF 2022). One might well ask: cui bono? The purported beneficiaries are sure to be.
If you click through and listen to that short clip, Máxima speaks with no genuine conviction, engagement or intelligence; she’s just another head girl dutifully reading from a script. Some may find it sinister, I find it faintly ridiculous. A royally silly effort to make remnants of feudal privilege seem hip and relevant among the jet-setting Davos crowd. Sam Bankman-Fried would no doubt applaud her for her effective altruism. Hardly a crowning success, I would say.
We should leave them to their self-indulgent spectacle, remain vigilant, and continue to pay for lots of things in cash.