Last week three of the world’s central bankers met for an online European Central Bank Forum: BoE Governor Andrew Bailey, ECB President Christine Lagarde, and Fed Chair Jerome Powell.
Their opinions will affect policy for the near-term—policies that determine inflation, interest rates, economic activity, the sales your company makes and the salaries or raises you may get in the future. Central Bank policies may determine whether you have a job, or can get one tomorrow, or whether you will have a nest-egg of savings to retire on.
Governor Bailey noted that the amount of cash continues to rise in the UK, and that people have a right to expect certainty of value in the money they use. He states that the “bar is set very high for private stablecoins”, while they have not yet met that bar.
ECB President Lagarde, was “not racing to be first” with a CBDC (Central Bank Digital Currency), and did not want “a substitute for cash, but a complement”. Some have asked that if a government produces a ‘digicurrency’, can they not simply give everyone a “haircut”? President Lagarde expressed that if a CBDC were cheaper, faster, and more secure for users, or if it contributed to more autonomy, or facilitated cross-border payments, the ECB should explore it.
Noting that digital payments have accelerated significantly during the pandemic, President Lagarde explained that “the main job is to respond to our customers—how do the people of the EU want to pay?”
The Fed is evaluating costs and benefits and has not made a decision to develop a CBDC. Chair Powell is concerned that it might undermine the USD’s status as a global reserve currency, does not want a CBDC to “pre-empt the use of cash”, while recognizing “an obligation to be on the frontier of policy” and feels “it is critical to get it right, rather than be first”.
Today, the Fed even makes corporate bond purchases and QE is causing rising central bank balance sheets across the globe, suggesting inflation on the horizon. Critically, CBs are effectively nationalizing the income from many securities—they are paying for the assets, but nationalizing the income streams.
Those income streams are the basis of pensions, and provide revenue for all the businesses, small and large, from savings accounts which, in free economies, provide the companies and employees with opportunity for more stable incomes, to reduce risks of economic shocks, or provide funding for R&D so that they can attain or maintain competitive advantages in free markets.
Central bank actions today are thus a cause of increased risk in economies. Certainly central bankers are provided with all the data—but they are caught within that web of details and political intrigue. Even acting with the best of intentions, they have limited efficacy to stave off the well-understood nightmare implications of centrally-planned, economic decision-making.
Users of digital currencies should also be concerned—it is your wealth that will be stored in CBDCs, if it comes to that. Should you have the choice of where you keep your savings? It is one thing to buy assets, but what about exposure to liquidity crises? Perhaps the future is brighter with both the possibility of CBDCs and the alternative to use private stablecoins, as Governor Bailey referred.
Private-sector ‘digicurrencies’ are an emerging alternative for consent-based mediums of exchange, potentially more stable than government “fiat” currencies. This is not an overnight solution, but a direction we can pursue, in effect decentralizing monetary policy. The concept is to offer economic pockets where monetary policy is long-term rational, and economically prudent rather than merely reactive.
Kevin Kirchman, CEO of Worldfree Corporation, Ltd, is a 2nd generation software entrepreneur, with special expertise in artificial intelligence and fintech. Worldfree is the developer of the FreeMark, an advanced digicurrency more stable than fiats, and firms he has founded have delivered best-of-class AI software technologies to many Global 500 firms.