A section of the central banking community opposes a Central Bank Digital Currency (CBDC) scheme that eliminates “intermediation,” i.e., commercial banking. The issue has been openly addressed by Germany’s Bundesbank officials (see accompanying slug) and apparently, it has affected the European Central Bank (ECB) position, at least so far. The City of London-centered faction, however, is not hiding the fact that “disintermediation,” i.e., the destruction of the commercial banking system, is exactly what they want to achieve through the introduction of a CBDC.
An article in City of London weekly, The Economist, published under the headline “Will the Central Bank Digital Currencies Break the Banking System? Perhaps, But That Might Not Be So Bad,“ and unsigned, welcomes the perspective of a CBDC that introduces a regime change in the financial system.
“The problem of disrupting the banks may be avoidable with clever engineering,” The Economist writes. “But it would be wise to consider whether it even needs avoiding in the first place. For those willing to entertain futuristic ideas, CBDCs may offer an opportunity to rethink the financial system from the ground up.
“Several research papers, as summarized by Francesca Carapella and Jean Flemming of the Federal Reserve in a recent review, argue that central banks could preserve maturity transformation by reordering the chain of funding. Today, households deposit money at banks, which park funds at the central bank. If people prefer CBDCs, however, the central bank could in effect pass their funds on to banks by lending to them at its policy interest rate. ‘The issuance of CBDC would simply render the central bank’s implicit lender-of-last-resort guarantee explicit,’ wrote Markus Brunnermeier of Princeton University and Dirk Niepelt of Study Centre Gerzensee in a paper in 2019. Explicit and, perhaps, in constant use.”
The Economist says the system of “fractional reserve,” the capacity of a commercial bank to lend a multiple of its deposits (which Alexander Hamilton uses as an argument in his Report on a National Bank) might be over.
And then, comes the tricky passage: “The real problem with central-bank financing of banks is the risk of default. To avoid picking winners, policymakers would probably need to fund any institution that can provide satisfactory collateral. Determining which loans and other assets qualify is uncomfortable work. But central banks already make such evaluations in times of crisis. The understanding that they will accept only high-quality assets, plus minimum equity requirements to protect creditors, is supposed to prevent moral hazard.“
Which “loans and other assets“ will be chosen by central banks under the paradigm of the Green Deal/Grand Reset? I’ll give you one guess.
Another idea is to completely eliminate the function of deposit banking, the one function that was protected by Glass-Steagall and is still protected by most constitutions in the world, under the provision of protecting individual savings—and making banks totally dependent on equities (financial markets) for their funding. “Banks are not necessary for lending and borrowing to take place—in America a high share of this activity takes place in capital markets instead. If bank credit must be kept flowing, governments could subsidise it directly—making explicit what today’s architecture obscures.“
The use of the word “governments“ is deceptive, as central banks are planning to take over government fiscal policies under the Great Reset. In a perverse twist, The Economist argues that depositors can invest their money in what The Economist calls “totally safe“ assets – meaning a CBDC account. https://www.economist.com/finance-and-economics/2020/12/05/will-central-bank-digital-currencies-break-the-banking-system
