Let’s call it the ‘onion-principle’. Digitalization could deliver great value to the broader public; including innovations in the banking sector. One could imagine that maybe in a century, people won’t be using cash as more modern, convenient alternatives have emerged. Already, societies have reaped tremendous benefits from innovations concerning communication, like the possibility of this very website to be run from a living room. The current wave of European digitalization, including the soon to be introduced CBDC’s, are possibly only detrimental to civil society. That’s the onion-principle: societal benefits appear to be non-existent after a closer look, they can logically be peeled off one by one, until only a bitter core of increased government control remains.
A central bank digital currency could, for example, deliver ordinary people an alternative to a riskier bank account. If savers fear a possible collapse of a certain bank, they can quite literally flee to the central bank, which is owned by the government. As such, the introduction of CBDCs improves the lives of you and your neighbors. CBDCs do however decrease the amount of privacy in societies in general, als using them would mean that all transactions are being stored electronically. The benefits do have some costs, which makes perfect sense.
However, the mere existence of such a possibility would be a grave existential threat to those banks. Customers could remove their balances in just seconds. That could trigger the collapse of those banks, or at least it will decrease their profitability and lending capacity as they will literally start to shrink. This effect is called ‘disintermediation’. To prevent that from happening, citizens will only be allowed to deposit a maximum amount on their CBDC-accounts. The ECB has suggested a capped amount of only five to seven thousand euro. That’s looks like a lot of money, but compared to people’s life savings it isn’t. If cash is to disappear in the meantime, privacy is lost while the benefit of an alternative, more safe bank account had been 'peeled off'. In the Netherlands, we have a certain lady named Maxima who calls herself ‘queen’. In an address to the IMF, she has stated that the design of CBDC should indeed prevent disintermediation. Her visions are those of the government, that’s how this works in The Netherlands. In recent months, Dutch parliament has held several debates on the design of CBDC, but to no effect. The decision with respect to the design of CBDC is clearly made.
I recently had the honor of discussing these developments with Catherine Austin Fitts, the American investment banker at Dillon, Read & Co. and, during the Presidency of George H.W. Bush, US Assistant Secretary of Housing and Urban Development for Housing. Check out our coverage of this topic at her site; and support my work through BackMe.