Bank of England discussion paper entitled “Central Bank Digital Currency”.

 

The above paper invites comments. So I sent one, as follows.

P.7  The first “key point” says that the only way for the public to hold BoE issued money is in the form of physical cash. That is debatable in that in the UK, any member of the public can open an account at National Savings and Investments whose only assets are base money and government debt. Thus arguably those accounts at the NSI come to the same thing as holding base money in digital form.

The latter point rather detracts from the claim made on p.37, para starting “But CBDC could also introduce risks for financial stability”, namely that the introduction of CBDC or a loss of confidence in commercial banks could lead to a run on commercial banks. That is, depositors at commercial banks have been free for decades to “run to” NSI, but have not done so. In particular, they did not run during the 2007/8 bank crisis.

Plus I would argue that any run from commercial banks is a flaw in those commercial banks, not a flaw in CBDC. My reason for saying that is that one of the main activities, if not THE main activity of commercial banks is basically fraudulent. That is, those banks, 1, accept deposits, 2, grant loans, and 3, promise depositors their money is safe, which it cannot possibly be because loaned out money is NEVER safe.

Indeed if any organisation other than a bank indulges in the latter “three point” activity (e.g. pension funds, unit trusts, mutual funds etc) those other organisations are liable to be prosecuted.

So why are banks allowed to engage in an activity which is fraudulent when done by anyone else? Well I suggest the absolutely VAST AMOUNTS of money spent by the finance sector (about £100million a year) buttering up politicians might have something to do with it.


In other words runs just wouldn’t occur in a full reserve system where (shock horror) banks are not allowed to engage in the latter fraud, as explained by Prof John Cochrane.