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Post by oliver on Mar 19, 2018 7:50:54 GMT
One of the annoying things with an open drug policy is that it does attract drug tourists, as you point out. Having foreigners adopt your nation's CBDC doesn't have the same negative connotations, since the nuisances that the CBDC abets--crime and tax evasion--are carried out in the foreign nation. The CBDC issuer thus gets all the benefits (seigniorage) and none of the costs (lost taxes, a high crime bill). Sort of like how Brits operating in the underground economy adopted the 500 euro note a few years back. The seigniorage paid by British criminals and tax evaders thus flowed into European coffers rather than British ones. Which is precisely why we can leave it up to other countries to liberalise their own drug policies, but we cannot just sit and watch when our friendly tax haven from next door harbours our criminals and covers their financial tracks. The sensible thing to do is to coordinate and keep at least cross border flows as transparent as possible. Switzerland has a long tradition of trusting its own citizens (> direct democracy), treating them as mature adults rather than subjects. Bank secrecy laws and the distinction between tax evasion and tax fraud are part of that tradition. But in the context of an open world, the bond of trust between a benevolent government and its citizens who are presumed innocent until proven guilty doesn't exist. It's just a marketing ploy for feeding the financial beast. |
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Post by oliver on Mar 19, 2018 8:54:21 GMT
Or prime London property, football clubs and other 'clean' holdings?
The focus on seigniorage as an argument for offering central bank deposits has given this a new twist for me (it may not be new at all, i.e. I may well just be very late to the party). But I'm very much with you that that focus may be too short sighted. From a systemic point of view, the aim of the game should be to stabilise institutions, not a particular asset class that is dispersed within the system. Because it's movements within the system that destabilise it. An implicit, government backed guarantee seems to be the best way to assure that runs do not occur in the first place. The other way, and I think this is the implicit aim of the full reserve crowd, is to completely centralise the demand deposit business.
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Post by JP (admin) on Mar 20, 2018 4:57:12 GMT
Some thoughts: 1. Would there be a dollar limit to anonymity? If not, we would be abetting criminals in an unacceptable way (the legitimate uses, like paying a strip club entrance, don't require large sums). There might be a partial way around this, though. We could have different balance thresholds, after which interest rate turns more negative, and ultimately deeply negative. But this assumes the CBDC would be a preferred store of value for criminals, and not just a way to transact and convert the balance to a deposit in commercial bank. I think. I assume transaction anonymity, and not just balance anonymity, is a useful service for criminals. A steeply progressive Tobin tax for CBDC transactions might, though, work the same way as the balance thresholds I had in mind. But if a criminal splits one transaction into thousand small ones, then she can avoid it. Anyway, I think we need to find a balance between punishing criminals and offering a useful service to law-abiding citizens. If yes, and assuming the limit would be some thousands of dollars (balance), then I don't know how useful CBDC would be for criminals, other than petty ones. So the amount of seigniorage might end up quite small. Overall, I think it's funny how such a seemingly simple thing as cash seems to be so hard to replicate in the digital world. The costs related to handling cash increase when the amount increases, likewise increases the likelihood of getting caught (say, transferring cash across borders). The latter should probably be replicated, too? It would sound wrong to provide criminals with a way to transact without any danger of getting caught. 2. The non-anonymous alternative is closely related to deposit insurance. (Thanks for the Cecchetti and Shoenholtz link! Good stuff.) Wouldn't a practically unlimited, non-anonymous CBDC make a full bank system bailout more likely? Think of Greece or Cyprus a couple of years back, or any country in 2008. No need to form lines in front of ATMs. If I in 2008 had had an account at, say, Bank of America, or even at, fortress balance sheet and all, JP Morgan Chase, I would have most likely converted it into CBDC "just in case". At least if it had been over the $100,000 limit, even if I had--probably correctly--assumed they will guarantee at least $1,000,000. Actually, I would argue that the option to convert into CBDC would allow high net worth individuals and businesses to disregard the deposit insurance limit altogether, as long as they were sure they would be smart enough to convert early enough (we all tend to think so). (A non-anonymous alternative with a dollar limit below, say, $500,000 wouldn't make any sense, in my opinion.) Would there be a limit to anonymity? I'd prefer if there wasn't, and even if I wanted one I'm note sure how it would be implemented. For example, if the limit is $1000, but I need $10,000, I'll just open a bunch of anonymous wallets to evade the limit until I've reached my goal. You mention the idea of different thresholds at which increasingly negative interest rates get applied. So that a $10,000 balance gets docked maybe 5% a year but $1,000 gets docked just 1%. It's a good idea, but if I'm a criminal I'll evade this by just having ten anonymous wallets with $1,000 in them. (This is the same reason why your Tobin-tax would be evaded). That's why I think that a simple flat negative interest rate is about all that can be implemented, along with unlimited anonymity. It tars criminals together with licit users who just want some anonymity, but it's impossible to get more precise than that, at least as far as I see it. "The costs related to handling cash increase when the amount increases, likewise increases the likelihood of getting caught (say, transferring cash across borders). The latter should probably be replicated, too? It would sound wrong to provide criminals with a way to transact without any danger of getting caught." Well, say a criminal's cost of keeping cash securely stored and moving it from time to time comes out to 3% a year. So a $1 million balance will cost $30,000. A $10 million balance would cost $300,000. A negative interest rate of 3% on CBDC would recreate at least some of the linear increase in payments costs borne by cash using criminals. Except the entire amount that criminals would otherwise pay to cash handlers would instead be paid to the state in the form of seigniorage, which I think makes sense since it is that state that bears the costs of tax evasion and fighting crime. "Think of Greece or Cyprus a couple of years back, or any country in 2008. No need to form lines in front of ATMs. " Maybe. But isn't that also an argument against ATMs when they were first introduced back in the 60s/70s? i.e. we should prohibit ATMs because then people won't have to enter the bank and wait at the teller to withdraw their cash. If the withdrawal process is shortened, that's a win for the customer. If people unshield themselves in order to get positive interest on their CBDC, that interest should still be x.x% below whatever a 1-day t-bill pays. This penalty should help limit movements out of deposits into CBDC. More tomorrow. |
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Post by Antti Jokinen on Mar 20, 2018 20:46:55 GMT
This is getting really interesting! I'm finding out opinions I didn't know you were holding.
OK. I thought it was widely accepted--practical problems aside--that we cannot offer criminals a fully anonymous way to transfer and hold millions of dollars. You don't see a problem with that? We have to remember that not even close to all criminals deal with cash only. For various reasons, they take their chances and leave a money trail. And they know leaving a money trail might help them get caught, just like the guy with a suitcase full of cash knows he might get caught. And it is the risk of getting caught that you'd be willing to remove with anonymous CBDC. Would you rather take a guaranteed 3 % haircut on your income or a 3 % risk of ending up in jail for 5-25 years?
My understanding of the technical side is very limited, but let me try. Would it be impossible to have an arrangement where an anonymous CBDC wallet could only be created by using a personal identifier (e.g, social security number), and this ID could be used only once to open a wallet (unless it had been used to delete a wallet previously), but no link between the wallet and the ID would remain once the wallet was created? This would allow us to apply the thresholds, or a ceiling.
Or then we could have a system where the wallet wasn't fully anonymous, but the authorities could only get to know the owner of the wallet if he was suspected of a serious crime (tax avoidance, drug use or paying for sex not enough)? Thus the risk of getting caught would remain.
I see, and I think you have a point there. Also, licit users would be probably willing to pay something for not having to handle cash in physical form, yet retaining anonymity. (Too bad they are usually not the same people who think that it is "handy" to use a credit card, instead of savings, as a buffer and are happy to pay 20 % for that service.)
I might be wrong--and I'm quite sure someone was really thinking as you suggest when the ATM was introduced--but I thought it was more like one ATM replacing 3-4 human tellers, so that emptying the bank didn't become that much faster or easier. I also haven't heard of people withdrawing tens of thousands of dollars using an ATM, while it is easier to imagine someone making that request to a human teller. Anyway, none of this is comparable to the ability to convert a $100,000-$500,000 deposit to CBDC with a click of a button, while sitting in one's home office.
In a panic, it is all about the return of your money, right? There has nearly always been a penalty for moving into cash, sometimes a hefty one, but that penalty never stopped bank runs. I remember for instance Bill Gross mentioning that in 2008 he was very close to calling his wife and asking her to walk to the bank and withdraw her/their deposit money (this was probably a local bank). Might have been the same day as Hank Paulson called his wife and cried to her on the phone, telling her that he's not sure they can save the system this time (or so I read in Sorkin's "Too Big To Fail").
By the way, I cannot help thinking that in a cashless society without CBDC, the strongest bank (say, JP Morgan Chase) would become from a depositor's perspective a de facto central bank in a panic, everyone trying to open an account and transfer their deposit there. Unless the actual central bank guaranteed nearly all other banks, as it would probably do. But if there was any doubt, then the central bank would guarantee the other banks only after people had started to transfer their deposits to JPM.
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Post by JP (admin) on Mar 22, 2018 15:27:35 GMT
Antti: "And they know leaving a money trail might help them get caught, just like the guy with a suitcase full of cash knows he might get caught. And it is the risk of getting caught that you'd be willing to remove with anonymous CBDC.
Why would an anonymous CBDC remove the risk of getting caught? No criminal will want to hold it for very long, since not only does it fall in value by 2% a year thanks to inflation, but it also incurs an interest rate penalty. So they will try and get it into the banking system, much like they do now with cash, at which point there is an opportunity for law enforcement to catch them. A criminal might try to buy a million dollar house with CBDC from someone who isn't a criminal (just like they might try to buy a house with banknotes) but then the seller is now stuck with $1 million in CBDC, which they will have to somehow launder, at which point another opportunity presents itself for the authorities to trace the criminal.
Antti: "Anyway, none of this is comparable to the ability to convert a $100,000-$500,000 deposit to CBDC with a click of a button, while sitting in one's home office."
The sorts of people rich enough to have $500,000 in deposits will be sophisticated enough to digitally run into short-term government t-bills, which at least provide some yield, rather than withdrawing negative-yielding CBDC. Same with businesses. So I don't see CBDC introducing any large deposit "click-of-the-button" flight risk that isn't already there.
Antti: "My understanding of the technical side is very limited, but let me try. Would it be impossible to have an arrangement where an anonymous CBDC wallet could only be created by using a personal identifier (e.g, social security number), and this ID could be used only once to open a wallet (unless it had been used to delete a wallet previously), but no link between the wallet and the ID would remain once the wallet was created? This would allow us to apply the thresholds, or a ceiling. Or then we could have a system where the wallet wasn't fully anonymous, but the authorities could only get to know the owner of the wallet if he was suspected of a serious crime (tax avoidance, drug use or paying for sex not enough)? Thus the risk of getting caught would remain."
Maybe. The system has to be not only anonymous but credibly anonymous. i.e. people have to be able to verify there are no back doors. Otherwise those who require anonymity won't use it, despite the fact that it meets their needs. Something like zcash would be an example of credible anonymity, since the underlying codes is available for all users to see.
Oliver: "Bank secrecy laws and the distinction between tax evasion and tax fraud are part of that tradition"
What is the difference between the two?
Antti: "In a panic, it is all about the return of your money, right? There has nearly always been a penalty for moving into cash, sometimes a hefty one, but that penalty never stopped bank runs. I remember for instance Bill Gross mentioning that in 2008 he was very close to calling his wife and asking her to walk to the bank and withdraw her/their deposit money (this was probably a local bank). Might have been the same day as Hank Paulson called his wife and cried to her on the phone, telling her that he's not sure they can save the system this time (or so I read in Sorkin's "Too Big To Fail")"
In an irrational panic, lines develop at ATMs, these lines in turn engendering more panic. Since a digital run into CBDC would not lead to highly visible lineups, panics would quickly die down. The quicker a bank meets customer's redemption requests, the safer it appears. So maybe CBDC promotes a more stable system rather than a run-prone one.
But let's assume your argument is right, that CBDC makes the system more liable to bank runs because it is faster to withdraw cash from an app than go to a bank and stand in line. If so, banks will be required to adopt policies that makes depositors less likely to run into CBDC, including--perhaps--engaging in better lending practices. I think that would be a good thing.
The problem with focusing on the effects of rapid CBDC withdrawal during panics is that we forget that most of the time things are quite calm. You could be right that there are points in time at which CBDC makes the system less stable, but counterbalanced against this is the stream of recurring savings enjoyed by society during regular times because people no longer have to incur the inconveniences of walking or driving to the nearest bank to get cash, but can instead get it instantaneously. If this saves a billion hours of people time, that's a billion hours that can be used on more rewarding activity. So the costs of instant convertibility need to be balanced against the benefits.
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Post by oliver on Mar 22, 2018 17:17:42 GMT
(...) tax evasion (or the simple act of "forgetting" to declare assets or income) is not penalised, unlike tax fraud (which entails the falsification of documents). In principle, a request for legal or administrative assistance from a third country can only relate to those offences that are penalised by law. Consequently, Swiss law protects the individuals and entities aiming to avoid the taxman in their own countries by omitting to declare their assets deposited in Switzerland.
You seem to be arguing that CBDC offers secrecy but would only be used as an intermediate stopover before people move on to other, higher yielding assets, thus 'blowing their cover'. I agree that that is a difference to bank secrecy, in that the latter offers the same degree of secrecy for all types of assets. I'm no expert on money laundering. I thought that moving into an anonymous asset such as CBDC would be enough to blur the trail so that the authorities could not prove any wrong-doing. But maybe I'm wrong? |
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Post by Antti Jokinen on Mar 22, 2018 20:09:15 GMT
Thanks, JP! You make me think hard, and still I'm not sure I will find good enough counter-arguments. But I'll try.
Let's take one thing at a time (I have little time today), and start with this one, now that Oliver took it up:
JP said:
I don't understand your last argument. Why would a non-criminal need to launder the CBDC he got for his house? Of course, a house cannot usually be bought anonymously, unlike gold or art. But if the seller--or a third party--has no responsibility to confirm the identity of the buyer, then I assume there's no way to trace the criminal, or blame the seller.
Then we get to Oliver's point. What if a criminal says, when asked by the police, that the CBDC he converted into a deposit came from selling gold or art--or anything valuable for which there's no ownership records required--to some stranger called Jake? Doesn't it stop there?
All of the above of course applies to cash as well, but it would be easier to do business with CBDC. Much would depend on how CBDC was viewed by legitimate counterparts. If an online lender, who cannot today accept payments from debtors in cash, would be allowed to accept payments in CBDC, it would probably be a game-changer in money-laundering. One could buy a car with the help of a loan, and then proceed in all silence to repay the loan with CBDC. Of course, if the authorities would decide that all larger transactions are suspicious, then they could require lenders to report any clients who make larger CBDC payments (unless the debtor splits the payment into many small ones).
We can also take some middleman, who buys and sells drugs for millions of dollars, but only has to worry about laundering $100-200K a year. If he can accept and make payments online, anonymously, then he avoids the risk of being found out due to either transferring cash across distances or using bank accounts.
And really, is it that far fetched that a cartel could be fine with having $50,000,000 for several years hidden from everyone, even if they had to pay 3-5 % annually for it? That is money that could be amassed and moved around safely, unlike cash.
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Post by Antti Jokinen on Mar 24, 2018 7:56:03 GMT
The discussion so far makes me think: How to avoid stigma related to using CBDC? If one of the main arguments for unlimited, anonymous CBDC would be the ability to tax criminals, then who else would be willing to use CBDC in any larger transactions involving politically correct goods (say, washing machine, but not a sex doll)? And if such stigma existed, wouldn't the authorities have all the reasons to track all larger CBDC-to-deposits transactions?
Perhaps I'm overreacting. As you pointed out, JP, it's good to keep in mind that much of this applies to cash already.
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Post by JP (admin) on Mar 24, 2018 18:53:02 GMT
Oliver "I thought that moving into an anonymous asset such as CBDC would be enough to blur the trail so that the authorities could not prove any wrong-doing. But maybe I'm wrong?"
People can already move into cash to blur the trail. CBDC would function exactly like cash, except be less bulky, but to compensate a CBDC would have a higher negative interest rate. So the physical nuisance is replaced with a monetary nuisance. Both cash and CBDC are characterized by the same sized chokepoint when it comes time to re-enter the banking system.
Antti: "Why would a non-criminal need to launder the CBDC he got for his house?"
So the non-criminal knows he's dealing with a crook, yet he does the transaction, right? If the payment had been in cash, he'll want to sneak the cash back into the banking system. If he doesn't and goes to the bank with $1 million in banknotes, he'll have to answer some uncomfortable questions. Likewise if it had been made with CBDC.
Antti: ;"What if a criminal says, when asked by the police, that the CBDC he converted into a deposit came from selling gold or art--or anything valuable for which there's no ownership records required--to some stranger called Jake?"
Whether this transaction was made using banknotes or CBDC, he'd come under suspicion. If criminals generally try to avoid these sorts of bold moves with cash, wouldn't they avoid them with CBDC?
Antti: "All of the above of course applies to cash as well, but it would be easier to do business with CBDC."
Much easier only because CBDC can be transported digitally but banknotes can't. They each suffer from the same bottlenecks when trying to bring them back into the banking system. But banknotes don't suffer from a 2-3% interest penalty, so the extra ease of transacting is offset.
Antti: "If an online lender, who cannot today accept payments from debtors in cash, would be allowed to accept payments in CBDC, it would probably be a game-changer in money-laundering."
If someone comes into the bank and wants to pay off a $200,000 loan with cash, would the bank allow this to happen without doing any checks? Probably not, and the same with CBDC.
Antti: "If he can accept and make payments online, anonymously, then he avoids the risk of being found out due to either transferring cash across distances or using bank accounts."
Yes, he avoids risk and cost of transferring cash across distances and storing it. But he also has to pay direct seigniorage to the central bank in the form of a negative interest rate. And with the state now enjoying more seigniorage, it can boost law enforcement such that the criminal may face greater risks in a CBDC world than a cash world.
Antti: "And really, is it that far fetched that a cartel could be fine with having $50,000,000 for several years hidden from everyone, even if they had to pay 3-5 % annually for it? That is money that could be amassed and moved around safely, unlike cash."
Either way, cartels will have a bunch of cash on hand or a bunch of CBDC. They need some of that for transactions, but a lot of it is waste cash that they would like to get both into legitimate assets that they can consume or which yield higher interest. But money laundering is slow. The idea is to set the negative interest rate on CBDC at a level such that criminals will store just about as much CBDC as they did cash. i.e. if we move from a cash world to a CBDC world, criminals wouldn't want to hold $50,000,000 more in CBDC. They would have the same desire to buy real estate as before.
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Post by Antti Jokinen on Mar 27, 2018 17:52:59 GMT
JP, just a short comment (I'm working long hours currently, but looking forward to continue the discussion in the coming days!):
I think you argue convincingly, and I see I was somewhat naive on many points. One thing where I still see a bigger difference is suitcases full of cash, crossing borders. But I don't know how many of these get caught today. But let's assume suitcases do cross borders, and risk of getting caught (losing 100 % of cash + the mule losing his/her freedom) is small but not trivial. How would CDBC change this situation? I think it partly depends also on whether one could easily convert from one CBDC to another, say from the US dollar to British Pounds.
What I still don't like about this is that everything seems to be about criminals. I hope we get to discuss other possible merits of CBDC soon :-) I'll get back to you!
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Post by JP (admin) on Mar 28, 2018 16:06:05 GMT
I agree that it would be much easier to smuggle CBDC across a border than to smuggle cash in bulk. Millions of dollars is probably smuggled over the Mexico-US border every day by mules, and some get caught. With CBDC the money could move from US to Mexico instantaneously with no threat of seizure. The negative interest rate on CBDC would hopefully counterbalance the increased ease of smuggling. We can even equate the stream of negative interest payments paid by criminals on CBDC to the stream of mules caught by the authorities crossing a border--both the negative interest rate and lost mules function as a toll. But from the perspective of the government, it's probably much easier to automatically dock negative interest on CBDC than to hire and train employees in bulk cash smuggling techniques.
"What I still don't like about this is that everything seems to be about criminals."
I focus on the criminal stuff because it is the most controversial. Most people agree that anonymous money for regular folks is a good thing.
"How to avoid stigma related to using CBDC?"
This is good point. If regular people don't adopt CBDC because it is stigmatized, then retailers won't accept it, and if retailers won't accept it, regular people won't use it. CBDC should be like cash, which means that it is accepted pretty much everywhere. Overcoming stigma is therefore very important.
"I hope we get to discuss other possible merits of CBDC soon :-) I'll get back to you!"
Come back soon. This conversation is helping me to nail down my thinking. Most of these thoughts have been lurking in my brain matter for a while, but I haven't had a chance to write very much on it.
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Post by Antti Jokinen on Mar 30, 2018 19:05:20 GMT
I focus on the criminal stuff because it is the most controversial. Most people agree that anonymous money for regular folks is a good thing. It's actually really interesting that you say "Let's do unlimited, anonymous CBDC so that we can tax criminals", while most people say "We can't do unlimited, anonymous CBDC because it would be used by criminals". Aren't the authorities quite heavily tilted towards the latter camp? (Edit: Here's BIS: "An anonymous general purpose CBDC would raise further concerns and challenges. Although it is unlikely that such a CBDC would be considered, it would not necessarily be limited to retail payments and it could become widely used globally, including for illegal transactions. That said, compared with the current situation, a non-anonymous CBDC could allow for digital records and traces, which could improve the application of rules aimed at AML/CFT.") Yes. If you think of cash, it's been around for ages, and many people still use it even when they buy groceries. There's no stigma. Cash was not introduced so that people could anonymously buy adult magazines or booze, nor was it introduced so that authorities could tax criminals. I'm not sure if anonymity in legitimate purchases is even a mainstream need? Here's Bank of Finland [ link]: "In Bank of Finland surveys, only a few consumers (some 2% of respondents) cited anonymity as a criterion for selecting a payment method. For example in Germany, anonymity of payment is of significantly larger importance to the consumer. In a recent euro area payments survey, 13% of consumers cited anonymity as an important reason for using cash in retail payments." So I think CBDC could be stigmatized if none of the main arguments for its introduction are related to mainstream needs. In case of physical cash, I can think of at least three uncontroversial reasons for using it: (1) not all sellers accept credit/debit cards, (2) it's easier to stay on budget when you use physical cash, and not credit or even debit cards, and (3) it works independently of technology (important for elderly, for example). Unfortunately, CBDC wouldn't answer any of these three needs? More tomorrow (or Sunday)! By the way, JP, if you were applying for a job at the cash department in a central bank, what would you read? Is there a "Handbook of cash management for central-bankers"?  |
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Post by Antti Jokinen on Apr 1, 2018 14:08:08 GMT
In an irrational panic, lines develop at ATMs, these lines in turn engendering more panic. Since a digital run into CBDC would not lead to highly visible lineups, panics would quickly die down. The quicker a bank meets customer's redemption requests, the safer it appears. So maybe CBDC promotes a more stable system rather than a run-prone one. But let's assume your argument is right, that CBDC makes the system more liable to bank runs because it is faster to withdraw cash from an app than go to a bank and stand in line. If so, banks will be required to adopt policies that makes depositors less likely to run into CBDC, including--perhaps--engaging in better lending practices. I think that would be a good thing. The problem with focusing on the effects of rapid CBDC withdrawal during panics is that we forget that most of the time things are quite calm. You could be right that there are points in time at which CBDC makes the system less stable, but counterbalanced against this is the stream of recurring savings enjoyed by society during regular times because people no longer have to incur the inconveniences of walking or driving to the nearest bank to get cash, but can instead get it instantaneously. If this saves a billion hours of people time, that's a billion hours that can be used on more rewarding activity. So the costs of instant convertibility need to be balanced against the benefits. Let's continue on this non-criminal stuff. You're probably right in that it's the smaller and medium-sized deposits, the ones under guaranteed limits, and not the really large ones that are most vulnerable to flights into cash/CBDC. I think the occasional panics are already so destabilizing, even if (or perhaps because?) they are rare, that we better make sure CBDC doesn't make things worse. If people like Bill Gross were considering "taking their money out of the bank" in 2008, then we don't need lines at ATMs to have a bank run. People are also quite lazy, and many think they might look stupid queuing to an ATM, but if you can convert a deposit into CBDC while sitting at home or on a bus, it would make a lot of sense doing it, just in case. People might, of course, behave quite irrationally and in mysterious ways, so all we can have at this point are educated guesses. I think BIS, in the report I linked to above, mentioned that central banks could put limits to conversions in times of stress. That would, no doubt, feed the panic, and the limits in my opinion would have to be really small as it would be easy for everyone to withdraw the maximum amount once a day. I, too, am for better lending practices and avoiding credit bubbles. But really, would a bigger threat of a devastating bank run help achieve that? I doubt it. The potential for a bank run has always been there, but it's the realities that have stopped it from happening. Authorities just cannot, or won't, let it happen. And that won't change if you increase the potential for a devastating run. At best, the panic will be worse, and authorities need to take more drastic measures to end the panic. The potential benefits of CBDC you talk about assume a society where cash is still widely used and where a large part of the population want to use an anonymous payment alternative. For instance in Sweden or Norway, where I'm based, people don't anymore walk or drive to the bank to get cash. The ones who still want cash get it by asking the cashier in a grocery store to give them some cash. Many people don't use cash at all (I don't have a need for anonymity, so I use very little cash). What you are talking about are really the benefits of a cashless payment system that could as well be run by private banks and other payment providers -- not the benefits of CBDC. |
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Post by JP (admin) on Apr 1, 2018 17:59:09 GMT
"Aren't the authorities quite heavily tilted towards the latter camp?" They usually say that it would be nice to have some anonymity but not too much, without going too much into the details of how this would be implemented. It's a convenient path to walk since they can claim to be addressing privacy concerns and criminal concerns at the same time. But I think by and large the authorities (i.e. central banks) have not put much thought into this question. "There's no stigma." I think it's starting to get a bit stigmatized in places like Sweden. By the way, there is a vision of a cashless future imagined by David Birch and Austin Houldsworth in which cash is entirely stigmatized and only circulates as "dark money": medium.com/@dgwbirch/light-and-dark-35123d3d4893"Unfortunately, CBDC wouldn't answer any of these three needs?" I think it would answer point 2 on budgeting. The problem with bank deposits and credit cards is that is that they allow negative balances so it is possible to keep spending even after one's budget target has been exceeded. But once a budgeted amount of cash and CBDC are used up, spending is no longer possible. Cash isn't the only payments medium that provides this service, private options like pre-paid debit and credit cards also do. "Cash was not introduced so that people could anonymously buy adult magazines or booze, nor was it introduced so that authorities could tax criminals. I'm not sure if anonymity in legitimate purchases is even a mainstream need?" That's an important point. Survey data tends to show that payments anonymity isn't that important to regular people, Germans being outliers here. That being said, I've never seen how this data has evolved over time. For instance, has there been an upward trend in the amount of people who think this is important over the last twenty years? My guess would be yes, but I could very well be wrong. If so, an argument can be made for building financial anonymity into payments technology now to prepare for steadily increasing demand. "By the way, JP, if you were applying for a job at the cash department in a central bank, what would you read?" Dunno. One problem is that central banks probably don't want to give out too much information in case it gets read by counterfeiters and thieves. |
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Post by Juan Gutierrez on Apr 2, 2018 1:19:03 GMT
General purpose CBDCs could be anonymous, privacy cryptocurrencies have already demonstrated that. But it's unlikely central banks would risk even the appearance of aiding and abetting, no matter what seniorage or fees they're getting. Widespread anonymous access to central bank accounts would be very hard to justify and implement, a nonstarter.
Even fully identified versions of either are unlikely soon. As you've mentioned, there's fear of unfair competition with banks, making bank runs easier, and greatly expanding central bank charters.
Central banks for now seem more focused on making payments faster and opening payment systems to nonbanks. So a specific purpose CBDC contained within these faster payment systems (or in FX, bond and equity settlement systems) seems much more likely.
This seems closer to the current remit of many central banks and could easily operate in parallel to existing arrangements. If successful, it can be slowly expanded to more participants and uses.
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