Monday, 24 August 2020

An argument for CBDC and full reserve banking.

“CBDC” stands for “Central Bank Digital Currency”, i.e. the idea that anyone should be able to hold central bank issued money in an account at the central bank, much as they can already hold central bank issued money (base money), in the form of $100 bills £10 notes etc.

The argument is as follows.

1. Given that all money nowadays is fiat money, i.e. it does not come on the form of for example a rare metal like gold, every country absolutely has to have some sort of communal agreement as to what the country’s basic form of money shall be and what government controlled entity or department shall issue that money. In practice it’s the central bank which does that job.

2. Base money has to be distributed somehow to the private sector, and that is done for the most part by having the central bank create base money with government spending it on the usual public spending items: education, law enforcement etc. (Or to be more accurate, base money is fed into the private sector via: “private sector buys govt bonds, 2, govt spends the money  back into the private sector, and 3, CB creates money and buys back govt bonds in whatever quantity is needed to keep interest rates at the the level the CB thinks is desirable.” But that all nets out to the same as “the state creates money and spends it into the private sector”.)

3. While much of that money ends up in the hands of individual people, small firms etc, who deposit base money at their commercial banks, it is only commercial banks which actually have accounts at the central bank where they hold base money. I.e. individual people, small firms etc are not under conventional arrangements allowed to have accounts at the central bank.

4. But that raises a question, namely: why should the privilege of having an account at the central bank be restricted (to put it bluntly) to Wall Street bankster / crooks who have had to pay a total of around $250bn in  fines and out of court settlements over the last ten years? I.e. why shouldn’t ordinary citizens be allowed accounts at the CB? There’s no reason why not!

5. But having implemented “accounts for all” at the CB, the question then arises as to why taxpayers should stand behind the accounts that citizens, small firms etc have at COMMERCIAL BANKS. After all, if citizen can obtain near total safety for their money by placing it at the CB, what’s the point of duplication of effort in the form of having taxpayers safeguard those who fund money lenders (aka commercial banks)?

6. Well there isn't much point, is there? But assuming we then abandon taxpayer funded protection for those with accounts at commercial banks, we have then arrived at full reserve banking!

That’s a system where those who want total safety for their money place it with the central bank, where they get little or no interest, while those who want to enter COMMERCE and have their money loaned out place it with private / commercial banks. But if those banks go belly up, there's no taxpayer funded bail-out.



  1. Money as a public utility:

    Money can be conceived of as pure information in a national (or central bank) database that has an account record for each individual or entity attaching a dollar number.
    The government (or central bank) can create new money by regularly crediting an amount to each citizen’s account as a citizen's dividend (universal basic income) and just as trivially tax each dollar in each account by deducting a tiny interest charge per day. In this way money is credited per citizen but taxed per dollar thereby achieving a simplified wealth distribution.
    Fractional reserve banking which enables the private banking system to create electronic checking money is incompatible with the public's right to control the money supply and to profit from any indirect “inflation tax” that may result from that seigniorage privilege.
    The elimination of fractional reserve banking is best implemented as part of a more robust general regulation in which all financial intermediation requires maturity matching so that near-money short term investments cannot be pooled to fund long term investments. Such a maturity matching requirement eliminates both commercial bank and shadow bank runs that inevitably occur resulting in economic instability, bailouts and deposit insurance.


    1. Your "natrights.blogspot" article looks interesting. I'll get back to you on that.


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