Are we there yet?

Are you afflicted by CBDC maximalism? Do you break out in an irritated rash when asked to store your credit card details online? Have you experienced pain when handling coins and notes? Are you suffering from deposit insurance anxiety?

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USD CBDC: Are we there yet? Are we there yet? Are we there yet?

Apparently not.

Last week, Federal Reserve Governor Christopher Waller said he is “highly skeptical” about the need for the U.S. central bank to develop a digital currency. In terms of lowering the cost of bank services, he said

“private-sector innovations might reduce the markup charged by banks more effectively than a CBDC would.”

Ouch! Seriously? You know how we CBDC maximalists feel about commercial banking?

🎵She got a body like an hourglass

But I can give it to you all the time

She got a booty like a Cadillac

But I can send you into overdrive (Oh) 🎵*

Wait there's more. Governor Waller set out the central tenets of SQA:

1. There is no problem which CBDC would solve.

2. Only a fraction of the unbanked would be interested in a CBDC.

3. Facilitating speedier payments is not a sufficient reason to create a CBDC.

4. If other countries are prime movers, this will not mean the dollar loses preeminence.

5. There is no reason to expect that the world will flock to a Chinese CBDC.

6. CBDC could disintermediate commercial banks.

To which I'm inclined to say:

1. say, whaaaaa?

2. At the end of 2020, the average cost of sending remittances from the United States was 5.22 percent of the total transaction (jus' sayin');

3. yes, it is;

4. yes, it does;

5. yes, there is; and

6. so could stablecoins.

Great. In my next blogpost...

*Sigh*. No I didn't really think you would.

So, the Federal Reserve got 🎵ninety-nine problems🎵** but a digital currency ain't one, eh? The hand the Fed has been dealt for the foreseeable future is massive fiscal expansion, sectoral price inflation, quantitative tightening, a low interest-rate baseline and seismic technological shifts. It's in danger of losing influence over the price of money, the transfer of money, the transmission of monetary policy, and the supply of emergency liquidity. And, for better or worse, a (partial) remedy in most cases is a digital dollar entered on the books of the Fed (aka the LOLR). 🤷‍♀️

Look, I've no skin in the game.

Take it or leave it, Fed-guys.

Wassat? Not in the business of taking advice from a blog that's "more Lonestar than U-star."?

Well, excuse me...

Speedier payments? Okayyy. If ten days and 5%+ transaction costs for cross-border payments is fine for you then I'm not one to nit pick. E-money vouchers can travel across borders instantly but unless they're backed by reserves and proper infrastructure, they're just "risk" writ large. 🎵Pay me what you owe me, don't act like you forgot.🎵*** And, if they are backed by reserves and ledgers-for-grown-ups? Then, I say make it central bank reserves and we'll call that "Intermediated CBDC".

And, there's more. 🎵Yeah, I wanna dance with somebody...🎵**** but the Fed refuses to see sense. So we're stuck here, rehearsing the self-evident arguments in pursuit of the Fed's inevitable enlightenment, this year or next. CBDC: C'est la vie, Cheri.

Currency substitution is generally thought to be an anticipated collateral feature of prime mover status for a CBDC or stablecoin pegged to one of the dominant global currencies. That's because digital payments are financially inclusive and can facilitate transactions via e-commerce or social networking platforms. A number of possible scenarios could see a shift in global financial cycles or even a breakdown of the international payments system. It is not possible to predict developments or consequences over the medium-term in the present state of flux but the rise of a single dominant stablecoin or CBDC outside the US is unlikely to leave dollar preeminence entirely unaffected.

China's Digital Currency Electronic Payment (DCEP) project is an intermediated, central bank-backed digital payments system known colloquially as the digital yuan. The goal is to offer a competitor to the USD and it's with a view to internationalisation that Beijing has joined the Multiple Central Bank Digital Currency Bridge. (It remains to be seen whether the Chinese authorities will embed the kind of privacy protections that international retail consumers are likely to say they want, but we shouldn't be blind to the essential truth: online convenience still buys a lot of goodwill, even if you brought your Big Brother to the party.)

Which...leaves us with commercial bank disintermediation.

OMG. When I die and they cut me open, they will find carved on my heart: "STOP TALKING ABOUT COMMERCIAL BANK DISINTERMEDIATION. JUST STOP."

I'm kidding.

I think.

But seriously, we've been talking about commercial bank disintermediation, fractional reserve banking and credit tightening, like, for-ev-uhr. 🙄

• First, it's all in the design: caps, tiered interest payments, intermediation...your CBDC, your choice.

• Second, are you so sure that Fed decisions with reserves aren't already causing unintended credit tightening?

• Third, and this is the killer.... what exactly do you guys think will happen when everyone figures that it's more convenient and cool to hold their savings in Bitcoin, Diem and the digital euro?

What's that? Oh, yes, perhaps I have been a trifle tetchy today. Sorry.

But seriously, are we there yet?

* Songwriters: Max Martin / Onika Maraj / Savan Kotecha / Rickard Goransson. Bang Bang lyrics © Bmg Gold Songs, Mxm Music Ab, Money Mack Music, Harajuku Barbie Music, Songs Of Universal Inc.

** Songwriters: Tracy Lauren Marrow / Norman Landsberg / Felix Pappalardi / Rick Rubin / Leslie Weinstein / John Ventura / Shawn Carter / Alphonso Henderson / Felix A. Pappalardi / George Jr. Clinton / John Elis Ventura / Shawn Corey Carter / Tracey Lauren Marrow / Weinstein A. Leslie / William H. Squier. 99 Problems lyrics © Warner Chappell Music, Inc, Kobalt Music Publishing Ltd.

*** Songwriters: Ebony Oshunrinde / Jacques Webster / Jamil Pierre / Kanye West / Rihanna Fenty / Badriia Bourelly. Bitch Better Have My Money lyrics © Sony/ATV Music Publishing LLC, Warner Chappell Music, Inc, Universal Music Publishing Group, BMG Rights Management.

**** Songwriters: Shannon Rubicam / George Robert Merrill. I Wanna Dance with Somebody (Who Loves Me) lyrics © Emi Blackwood Music Inc., Boy Meets Girl Music, Young Money Publishing Inc., Irving Music Inc.