Will Governments Give Central Banks What They Want?

Three weeks ago, we talked about the “central bank digital currency” (CBDC) concept and what it means in the context of a broader movement defined by “decentralization.”

Raoul Pal made some excellent points in a recent Twitter thread that describe an attempt by central banks — including the European Central Bank — to keep overarching centralization and it provides a good foundation for us to revise and extend our remarks.

Of course, he notes that we’ve entered a period of permanent debasement. But let’s start with what looks like the “money tweet” from Raoul’s thread:

The results of that poll are interesting on their own too, but we’re more concerned with the following:

They allow the CB's to circumvent the banking and fiscal system and give or take money (tax or transfer payments) directly. That completely changes monetary vs fiscal policy for ever. CB's will now be able to manage fiscal policy, outside of governments balance sheets.

The potential circumvention of the fiscal side of the prevailing global financial system by central banks is something we haven’t yet addressed. It seems too that this is a way to circumvent democracy altogether, resting ultimate power to technocrats at central banks.

Indeed, we’re digging deeper into this topic and will have more for you soon. In fact, as Raoul noted as well, the International Monetary Fund (IMF) is hosting a seminar, “Cross-Border Payments — A Vision for the Future,” during which Federal Reserve Chair Jerome Powell is expected to offer his perspective on CBDCs. That is happening today.

Even while he raises the specter of ultimate centralization via CBDC, Raoul correctly states that crypto is basically the only protection against it. He emphasizes this point on this podcast.

The implications, by design, extend beyond the monetary and into not just the fiscal but the behavioral as well “based on big data and real time activity data.”

As Raoul suggests, central banks “can now create incentives directly as rewards, or punishments. They can affect human behavior in a way that is much less blunt than traditional monetary and fiscal policy.”

It’s ominous that central banks seem bent on centralizing even more authority in their hands.

It’s refreshing that the means to their end are equally available to the people.

Best,

Juan and Bruce