Reaction & Commentary
Cbdc’s will have how governments plan on rolling them out and what implications this could have for cryptocurrency Now i hate to make you wait but i need to set the record straight financial advice is great but you won’t find any here mate this video is only meant to entertain and educate if this is the first time you hear my dank rhymes my name is guy and this
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So that’s all you need to know about me so let’s dig in to some cbdc’s the report i’ll be discussing today was put together by the bank of international settlements now for those unfamiliar the bank of international settlements or bis is the quote bank for central banks and its primary role is to
Facilitate coordination between central banks around the world over the last few years the bis has been hammering out a template for central bank digital currencies and if the name didn’t give it away well central bank digital currencies or cbdc’s are digital currencies issued by their respective central banks duh
Note that cbdc’s are not crypto currencies by any stretch of the definition this is because cbdc’s are centralized permissioned and offer next to no privacy cbdcs are completely controlled by central banks and the governments they are beholden to almost every central bank is working on
A cbdc of its own and seven of these central banks have been actively helping the bis hammer out a cbdc template these are the united states federal reserve the european central bank the bank of england the bank of japan the swiss national bank the bank of canada and the swedish central bank
Back in october 2020 these seven central banks and the bis published the first of many reports about what cbdc’s will look like the second cbdc report came out on september the 30th and that’s the one i’ll be covering today this report contains even more details about what cbdc’s will look like and
It’s divided into three parts system design and interoperability user needs and adoption and financial stability implications the authors provided a short six-page summary of their three-part cbdc report and there are a few interesting points in the summary which were seemingly not mentioned in the three sections of the report
The very first thing worth pointing out is the most important and that’s that everything you’re about to hear applies to a public or retail cbdc now this is a small but insanely significant detail because central banks governments and select institutions will use their own so-called wholesale cbdc’s
A wholesale cbdc template is also being hammered out but one thing is clear as day regular folks like us will use a completely different digital currency to the people in power let that sink in now another concerning detail that can be found at the end of the very first
Page of the report summary and that is quote cbdc’s would be likely to have wide-ranging impacts on public policy issues beyond a central bank’s traditional remit this seems to imply that cbdc’s will be used to enforce public policy mandates which are not financial in nature but wait there’s more quote
Different users and needs would need to be defined and addressed in the system’s design and quote central banks might consider measures to influence or control cbdc adoption or use this could include measures such as access criteria for permitted users this suggests that even retail cbdcs will have different rules for different
Groups of people now if you’re starting to feel upset don’t worry the bis and these central banks know that quote there might be some measures that may face obstacles to public understanding and acceptance i’ll tell you how they plan on helping you understand and accept these terms and conditions in just a moment
But first let’s start with how these cbdc’s will be designed much of how cbdc’s will be designed has to do with what roles the current financial intermediaries will play in such a system for starters quote central banks would be the only entities entitled to issue and redeem a cbdc and would bear the
Ultimate responsibility for the design of the cbd system and the operation slash oversight of the core ledger now although central banks could theoretically cut out all existing financial intermediaries the report stresses the importance of partnering with the private sector simply because the central bank can’t possibly recreate much less maintain the same
Infrastructure on its own if it helps here’s an image of what the financial system looks like now in most countries and here’s what a cbdc-based financial system would look like according to the report as you can see the exact role each party plays here is not entirely clear but the
Report notes that quote if the central bank were to play too operational or dominant a role in the ecosystem private intermediary participation could be curtailed given that private financial intermediaries are going to be a part of the picture this means cbdc’s will need to be interoperable not just internationally but also domestically
With their existing infrastructure because this will likely cause a lot of technical issues the report recommends limiting the number of financial intermediaries that are allowed to operate also quote approval processes for new intermediaries or certain services and strong oversight could help mitigate technical issues meaning the central bank will decide
Exactly which financial intermediaries are allowed to operate when it comes to privacy quote full anonymity is not possible as central banks would design cbdc systems to meet anti-money laundering and combating the financing of terrorism requirements thankfully your data will be safe because quote the central bank would
Have no commercial interest in end user data and may be better placed than a commercial entity to commit to a minimal use of such data what a relief now the report also brings up the infamous travel rule put in place by the fat f which means that every cbdc
Transaction above a certain amount would be automatically tracked if you don’t know what the fat f is and what it’s got planned for crypto in the coming weeks be sure to watch my video about that using the link up in the top right i digress the next part of the report briefly
Touches on the interoperability requirement for cbdc’s and notes that quote the essential foundation of interoperability would be standardization which would allow compatibility the last thing the report mentions about interoperability is quote a cbdc could be introduced with an explicit policy goal to catalyze a migration of national standards to eg an internationally
Promoted standard put differently cbdc standards will be global i for one cannot wait this brings me to the moment you’ve all been waiting for and that’s the part of the bis report that explains how central banks and governments can convince us plebs to adopt their cbdc’s make sure you’ve got enough popcorn
It starts off by not so subtly admitting that the main reason why central banks are developing cbdcs is because of cryptocurrency adoption quote without continued innovation and competition to drive efficiency in a jurisdiction’s payment system users may adopt other less safe instruments or currencies potentially leading to economic and consumer harm
Even though central banks can see the writing on the wall the report seems to imply that rolling out cbdc’s too quickly could do more harm than good this is fleshed out more in the third part of the report which i’ll get into later now ironically the report acknowledges that quote technological
Innovation has been transforming the markets for retail payments at pace over recent years with many new payment methods platforms and interfaces evolving to become faster cheaper and safer the logical conclusion of this kind of statement would be to allow this kind of payment innovation to continue but apparently the bis and its banker
Buddies believe this is better done in a different way now the report then outlines the three ways by which cbdc adoption can be achieved by fulfilling unmet user needs achieving network effects and not requiring everyone to buy a new computer or phone how exactly cbdc’s fulfill unmet user
Needs is detailed a little later on and according to the bis the main selling points here are security low cost high liquidity programmability and privacy sorry now in terms of achieving network effects the report suggests quote cbdc design could choose to emphasize peer-to-peer functionality in order to facilitate adoption this recommendation
Is based on existing research on the adoption of digital currencies but i don’t think the authors realize that they’re not exactly comparing apples with apples here not requiring everyone to buy a new device is pretty self-explanatory though it comes with its own set of issues related to performance because the most
Widespread technologies are the most basic as the report goes on it starts to detail some more manipulative ways of achieving cbdc adoption namely quote incentivize consumer use of cbdc by disbursing social benefits and transfers to individuals in cbdc and quote allowing consumers to pay their taxes in
Cbdc may also provide a stable concrete example for consumers to use cbdc on page 11 the report provides a sort of rubric for various cbdc marketing campaigns targeting consumers with different pain points and needs the funny thing is that one of these consumer archetypes is a person quote
Who does not want commercial banks to know his or her identity or track his or her spending naturally the best solution to this issue is to give all that information directly to the central bank instead now i reckon the ideal middle ground would be to offer both transparency and
Compliant privacy the way secret network does and you can learn more about that using the link up in the top right so this leaves just one part of the bs report sorry bis report and that’s the financial stability implications of a cbdc here we see the first mention of
Cryptocurrency when the report notes that quote stable coins are only just starting to be developed and we’ll need to satisfy regulators that they are safe well i guess they missed the memo that stable coins have been around for years and their users know which ones are safe and which ones are less safe
Then the report goes on to claim something so ridiculous that it pains me to even repeat it quote unlike central banks issuers of stable coins are not banned by principles to design products that would coexist and interoperate with other forms of money or to promote ongoing innovation and efficiency
This is categorically false as far as i’m concerned stable coins like usdt and usdc are available on more than a dozen different blockchains and it’s in their economic interest to be as interoperable as possible stablecoins are literally leagues ahead in interoperability terms of any cbdc heck even visa has managed to test usdc
As part of its own payment infrastructure and then the truth comes out quote significant stablecoin adoption and the potential consequent fragmentation could result in excessive market power and the type of deposit disintermediation described as a risk for cbdc issuance this officially confirms that stablecoins are seen by central banks as
A risk to the rollout of a central bank digital currency they’re also hyper aware that quote the actual introduction of cbdc’s could be some years away in the interim providers of private money and tokens are expected to continue developing and expanding their service offerings and because central banks can’t possibly
Catch up the only way they can slow stable coins down is through regulation which is probably why we’re seeing headlines like these all over the place though the next part of the report is quite technical in nature my interpretation is that central banks know that cbdc’s can’t compete with
Stable coins because they can’t offer the same yields on savings you find in d5 as i mentioned in my video about fidelity’s views on cryptocurrency yields are something that wealthy investors and institutional investors crave and their influence could just protect stable coins from harsh regulations
Page eight of the third leg of the bis report is where things get really interesting besides the fact that the projected adoption of cbdc’s in g20 countries is between four and twelve percent cbdc’s could pose a huge threat to the financial system via the banks to understand why we must go back in
Time when the stock market started crashing in the lead up to the great depression people scrambled to withdraw all their money from their bank accounts only to find that their banks didn’t have their money because it had all been lent out these bank runs caused the banking
Sector to collapse and this is what ultimately caused the great depression the fdic was created shortly afterwards to make sure that banks always had enough cash on hand to make sure bank runs could never happen again however the bis report highlights the fact that a cbdc would be seen as a safe
Haven by many investors during a time of crisis meaning they would move their money out of the banking system and into the central bank this would lead to a collapse of the banking system like it did a hundred years ago now even if this collapse doesn’t happen
The report admits that in a cbdc system quote a common theme is that maintaining bank profitability levels could be challenging the report actually gives a series of recommendations for how private banks could mitigate the punch to their pocketbooks and the potential collapse it could cause and they are laughable to say the least
Of all the side effects the report says a cbdc could have on the banking system one of them caught my eye quote the introduction of a cbdc by the central bank could cause a reduction in commercial bank deposits which would consequently translate into more expensive credit lines
In plain english cbdc’s could make loans more expensive and that means it could become next to impossible for the average person to buy a house or other valuable assets say it’s almost like you’ll own nothing and be happy where have i heard that one before anyways the same run on the bank risk
Exists with stable coins and you could argue that it’s already begun the 120 plus billion in stable coin market cap didn’t come from nowhere it came from bank balance sheets after highlighting these risks and others such as cbdc’s potentially replacing government bonds as the primary safe haven asset among investors
The report explains how central banks can use their omnipotence to prevent these scenarios from playing out quote quantity-based safeguards would restrict the use of cbdc through imposing hard limits on the transfers and or holdings of cbdc and quote limits could also be applied varyingly for different cbdc account holders
Better yet quote such limits could be imposed on a permanent basis or on a transitional basis in other words if the economy starts crashing and everyone runs to cbdc’s to protect their wealth the central bank will prevent them from doing that to prevent the crash investors be damned
Now the bis report concludes that quote a material shift from bank deposits to cbdc if the holdings of cbdc’s by individual users were left unconstrained could have a non-trivial long-term impact on bank lending and intermediation well where do i sign up as terrifying as this bis report is it
Reveals just how difficult it will be to roll out such a dystopian system and i would argue it’s next to impossible this is simply because there’s no way to introduce cbdc without eating into the bottom line of the banks and financial intermediaries they would sooner side with crypto than
Let that happen and i have a strange feeling that this could be the outcome of the introduction of a cbdc there is also no way in hell that the average person would adopt a cbdc without being forced and the moment you start to use force to mandate something
You claim is good it becomes clear that it’s well not this begs the question of why central banks would go through all this trouble to create what is likely to be a piss-poor payment method well i reckon the answer is that this isn’t their actual goal and the evidence
Is easily found in the design of what they’re building cbdc’s are nothing short of a tool for total control and every single stated benefit and feature only exists to entice people into this totalitarian scheme as the report itself admitted there are already numerous financial technologies that can do everything cbdc’s can and more
Most of these financial technologies have come from cryptocurrency and i find it odd that the report didn’t mention any cryptocurrencies besides stable coins now on that note it didn’t mention the word blockchain either i suppose the bis doesn’t want to draw any more attention to cryptocurrencies
It would be a real tragedy of any of the governments reading the report got the idea of adopting bitcoin like el salvador did other countries are likely to follow suit especially since it’s much easier to plug into a financial system that’s been proven to be secure and reliable
Rather than build a new one from the ground up it looks like they won’t have any other choice either because fiat currencies are losing value and credibility by the minute this might actually be what the central banks want though after all the only way they could possibly convince anyone to
Adopt their cbdcs is if their existing fiat currencies are worthless even then the crash could happen much quicker than they anticipated and their cbdc’s are far from being ready to fill that void now it sounds crazy but we could end up with a scenario where the only kind of
Money left with any value are select cryptocurrencies and china’s digital un i think we all know which one the world would pick that’s just my theory though and i’m keen to hear yours so what do you think of these cbdc’s drop me a comment down below and be sure
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