This entire article is a conflation of two orthogonal arguments:
1. Austrian economics is right, Keynsian is wrong.
2. Central banks are introducing ledger based currencies to increase surveillance of consumers, using the strawman argument about China.
On 1), the pandemic has shown that government spending works to keep an economy from failing. The old inflation argument has been proven completely false. If anything, what has been proven is that a greater distribution of wealth is needed as Amazon and online wholesale and retail take over.
The boom in online sales is a superprofit, driven by a windfall that government public health measures closed other sales channels. Those profits should be subject to a windfall tax to reduce that concentration.
On 2) Central Banks are looking at ledger based currency as a way to allow more distribution channels beyond the existing retail banking network. It allows greater freedom for financial offerings by removing a layer of distribution.
In a way, ledger based currencies are the "Amazon" of money distribution by central banks. It allows them to push money out when needed to multiple outlets, while still maintaining regulatory control.
If anything, it's a "free but regulated market" at work.
On 1) How can you say the inflation argument has been proven wrong? Since the financial crisis in 2008 houses in Austria have more than doubled in prices.
I find your arguments very naive. You entirely ignore the misuse of governmental power - history has shown us. Also please consider that increasing the money supply steals money (the value of money) from everyone's checking account over the long term. At the same time consider that QE money is not retrieved by the people who need it most (see cantillon effect).
> increasing the money supply steals money (the value of money) from everyone's checking account over the long term.
It's worse than that.
If inflation was uniform and instantaneous, expanding the money supply would just result in a corresponding change in all prices and account balances. It'd be like trying to redefine the litre in order to get more gas from the pump. As such, the state wouldn't bother trying to change it.
Inflation "works" insofar as it allows those who receive the new money earlier to buy goods before the suppliers realize their prices are too low for the new money supply, and in so doing drive up the prices faced by those who receive the new money later. The aggregate effect is to transfer money from those who receive the money last to those that receive it first (banks, financial institutions, forex, etc.)
>houses in Austria have more than doubled in prices
Inflation measures the general price level in the economy (in the form of a basket of goods), not the prices of individual commodities. The inflation in Austria has been at a steady 1-3%[1] over the last decade, roughly in line with inflation targets. Housing prices have risen, like in many other regions, due to a lack of supply of housing in the market, not changes in the money supply.
These vague rants about governmental power are exactly what makes it to read any of these Mises articles with a straight face, it is nothing else but libertarian ideology.
You know that all the central banks are actually saying themselves they want to track? It's not even a secret, you can read it right on their websites. The EU bank and Commission use China as the example, check it out: https://www.europarl.europa.eu/RegData/etudes/STUD/2020/6487...
I am not sure where in the 47 pages you are reading that, I can find that the report is reccomending a european internet like the chinese to have higher growth in EU, and to foster european values "such as democratic values, data protection, data accessibility, transparency and user friendliness." Which I see rather pependicular to what you are saying it is telling. It should also be said that this report is not made by the european union, but for the european union by a 3rd party that got paid to make research for them. What it says, may or may not be influential to the future decicions of the EU.
For #2, what is the actual technical hurdle to more widespread distribution? I saw an idea that every citizen should just automatically have a checking account at their regional Fed. Why not that? It does not seem technically infeasible, and the fed could then do distribution by debiting their own accounts.
Regarding technical feasibility: I don't think the Fed has a system ready that could handle the amount of transactions and record keeping necessary for a system which is accessible to the public. They would need to buy such a system. But more importantly so called narrow banks are not in the interest of regulators and the current financial system. If customers could directly deposit at the Fed they would likely disintermediate regular banks (which leads to a bank run) and prevent them from doing their central function in the financial system (issuing credit). You would have to rethink the financial system and regulators are wary of such big changes. Matt Levine has a great article about it: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
It is fun to speculate about this, because money is fundamentally information - imagine that a dollar is a "like".
The most fundamental hurtle to distribution is that people don't wanna! When you have a bunch of likes, giving them away sounds like a good idea, but in reality it means a) reducing your own value (unfairly), and b) increasing someone else's value (unfairly).
I personally have another solution, that I've never heard articulated, which I call "The Enough Number". It's a number you individually decide is enough for you, after which you will choose not to work any further (at least, not for money). This achieves a kind of de facto redistribution since, theoretically, someone else will step in to make the money the retiree is no longer making. Another way to put it is that it creates an artificial scarcity of competence, or it means that competence-for-hire decays over time in a way that is beneficial to society.
The only way for this to work, IMHO, is if you get some social status at Davos (free VIP entry for life? A medal?) for having a achieved Enough. Or maybe a publisher can arise, called "Enough Press" where such people can get a book deal.
FWIW my own Enough Number is $10M. This is still quite high but it reflects my upper-middle class sensibilities. This would be enough for a beautiful 1500 ft^2 house in Laguna Beach, a 30' wooden sailboat I partner on with a couple of neighbors, and I'd probably spend my time teaching neighborhood kids how to program and make things in a beautiful, sunny space filled with all kinds of very cool and dangerous components.
Politically, this helps focus me on the desired outcome, where the Earth is populated by people who routinely achieve Enough at 30, and spend most of their lives raising their kids, traveling, telling stories, eating good food, reading and writing. The really duty driven folk would find longer-term work at the EPA or the Justice Department or on space projects, etc. I would expect intellectuals to have the easiest time of it, because they could become adjunct professors. Celebrities and business people would struggle, I think, because the attention is the juice, and you can't every really have Enough!
The Austrian answer to such a crisis has been tried early in the 20th century after the Great Depression. Spending was reduced but the government was still running a balanced budget. "Outright leave-it-alone liquidationism was a common position, and was universally held by Austrian School economists." [1] Mainstream consensus is that if the Fed had expanded their balance sheet immediately and government had reduced taxes and increased spending the crisis would have been much less severe - but this only started when WWII broke out and the war had to be financed.
Looks like essentials like food and shelter are rapidly outpacing the lower class' ability to pay for them. So my guess is food stamps and housing stipends will grow as wealth concentrates into the hands of those who own/produce them.
Right now many central banks and countries, especially the US are actually exercising a third economic philosophy: monetarism (which the federal reserve board members are historically staunch supporters of)[1].
On 1: I think the final judgment is yet to be made. We don’t know how many businesses will keep going for how long and if there is just a delay in bankruptcies.
Also, inflation in consumer goods can show delayed as well. And assets are already inflated. It’s a bit too early to say with confidence, that the stimulus prevented the economy from failing.
> 1. Austrian economics is right, Keynsian is wrong.
At this point in history, how can anyone claim that Keynesianism is "wrong"?
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
I'm sure that there are nuances in the model that can be more or less accurate, but the idea that (aggregate) demand drives economic activity, and that (central bank) interest rates and government (stimulus) spending effects economic activity seems fairly certain. Especially with everything we've seen over the last ~20 years: Fed-driven US real estate bubble, post-2008 economic recovery, lack of inflation due to low/zero rates even with lots of "printing money", austerity caused economic slowdowns (in the EU).
It's been one giant economics petri dish of experiments. How has Keynesianism failed? Non-K folks were predicting all sorts of problem, and yet the Ks were saying 'it'll be fine':
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
Like most of Krugman's blogs, he's over-simplifying for a mass audience.
Full-employment is very easy to achieve for the government, if that is the government's only goal. Create artificial demand for ditches to be dug, and then hire people to dig those ditches. The fundamental question is not how to generate artificial demand, but how to generate artificial demand that succeeds at generating useful value.
Now, that spectrum has a range of answers. Sometimes you don't really care about value, or you take value on faith, e.g. when constructing public infrastructure works. They put people to work, get people spending, and everyone agrees that the country is in dire need of infrastructure improvements right now. There are, however, two non-infrastructure extremes: a) spending money on strong companies that will become stronger (instead of failing due to temporary unavoidable circumstances), but if anyone knew for sure which companies these were, the government wouldn't need to spend any money at all, investors would step in and pocket the profits. Then there's b) spending money on weak companies that would've failed in a year or two anyway, and emergency bailouts only forestalls the inevitable, wasting money and time and creative potential for nothing.
Now most companies are on a spectrum, which means that the strategy of such wide-spectrum spending is to offset the losses of boosting weak companies with the gains made by strong companies, overall.
Will it work at generating (net) useful value? Maybe. If so, then the currency is tied up in the extra value generated, and we'll avoid inflation. If not, then we have far more currency in circulation for the same amount of value, and prices will go up in tandem. Jury's still out.
Giving people money for nothing is not providing value for effort. This is doomed to fail. Every single extra dollar printed is pure inflation rather than wealth creation. All of the things people really want inflate while marginal crappy goods decline in quality and remain affordable. Housing, quality education, childcare, high quality food (think Whole Foods), good clothing and shoes - all of this stuff gets more expensive. If a UBI is ever implemented we will have a vast underclass of people barely surviving despite their “free money” and the wealthy will continue to get ever wealthier.
> If a UBI is ever implemented we will have a vast underclass of people barely surviving despite their “free money” and the wealthy will continue to get ever wealthier.
That’s why there would need to be a wealth/income tax to redistribute in order to provide the UBI in the first place.
Doesn't the very idea of the 'Central' in Central Bank Digital Currencies violate existential reasons and fundamental functions of digital currencies / cryptocurrencies?
This seems to be an attempt at corralling a market by offering something entirely unfit for purpose, but marketed as being backed by the ultimately trustworthy (for surface-level-only reasons of "well, we've gotten you this far") Central Banks, and therefore immune to failure.
What can it offer that doesn't already exist and also provide any consumer benefit?
The article seems to answer that: nothing, in fact, less than nothing.
Cryptocurrencies are anathema to Central Banks, so any embrace by the Central Banks must be looked at as a defensive reaction to a changing landscape.
>> Doesn't the very idea of the 'Central' in Central Bank Digital Currencies violate existential reasons and fundamental functions of digital currencies / cryptocurrencies?
On the other hand, one might describe proof-of-work currencies as an attempt at corralling a market by offering something entirely unfit for purpose, but marketed really aggressively.
What purpose? If you're only interested in a transaction processing system I don't anyone thought that cryptocurrencies were going to be an efficient alternative to a centralized ledger.
I don't really follow the argument presented here. Seems to be a proposal to have ultra austerity.
>Economists of the Austrian school understand, that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism.
> If wealthy people want to live in a minimalist world they should become monks instead of trying to push others to live like they themselves can’t.
The people cheering on continuously increasing government debt are cheering on impoverishing their children and their children's children to temporarily bolster their own living standards. To me that seems disgusting, robbing the future to pay for excess in the present.
it's not that they don't think there should be economic booms, just that when they are artificially amplified by newly printed money, they tend to disproportionally benefit those who receive the new money first. And inevitably, those artificial booms are followed by artificially large contractions, which harm those at the bottom of the socioeconomic ladder the most.
> This gives the central banks three very dangerous capabilities.
This can be said about any technological innovation since the cave age. It's evil because it could be used for evil. I, for one, don't appreciate this kind of arguments.
For me personally CBDC has two big advantages
- reduced risk (central banks can't go bankrupt)
- commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.
> commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.
Central banks have been against direct accounts for retail for this reason, because they didn't want to be in the business of retail lending as well.
What would be the alternative there? It seems unlikely that central banks would go into the business of vetting and giving out small business loans. Could a commercial bank function with only giving out loans and no deposit (I guess it would get loans directly from the central bank instead of balancing its balance sheet with deposits?)
> Could a commercial bank function with only giving out loans and no deposit
As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
Not to be pedantic but central banks can and do become insolvent! E.g. developing nations with dollar denominated debts. Central bankers will tell you they can’t go bankrupt but of course they have to say this as the whole system is based upon confidence and trust.
Indeed, there have been certain periods of time where privately issued money / bank deposits were “safer” than central bank or government issued currency. Also keep in mind that bank deposits are not a promise to pay base money as people mistakenly believe. It’s just that commercial banks are a market maker between their money and the government/base money and it just so happens that the exchange rate is 1:1 unless the solvency of the bank, central bank or government is brought into question.
Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan, you swap your IOU (a debt from you to the bank - the bank’s asset) for the bank’s IOU (debt from the bank to you - bank’s liability). You do this because the bank IOU is readily accepted by everyone and yours isn’t. If you just have a deposit, you get it by swapping the IOU from another bank or an IOU from the government (notes and coins) for an IOU with the bank you hold a deposit with. Note that the deposit is not your money either.
> Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan
Sure. But you don't simply get a loan. A bank (account manager) will make a decision whether they want to give you a loan (with a certain interest) or not. And I don't have any influence on that "decision". This is what I mean when I say "commercial banks invest my money on my behalf without me having any control over the process".
I am not against commercial banks per se. But me not having to rely on bank deposits for day-to-day payments (I presume we all agree that nobody wants to carry cash around) will force banks to do a better job at attracting my money. Maybe they will have to give me a better interest rate and give me some knobs I can tune to control how my money is invested.
Technology can be a catalyst for increasing competition between banks. There might be another (regulatory) way to do it. Whichever gets us there faster.
Central bank digital currencies are just fancy PR for holding your current account at the central bank rather than a commercial bank. Which then means you don’t really need deposit insurance since if you’re concerned you’d park your money at the central bank.
Deposits in commercial banks can then be treated as bank risk capital - where the depositor always risks a loss.
Perhaps I’m missing something, but aren’t currencies mostly digital anyway?
I don’t actually know for sure, but surely the percentage of fiat money that exists as physical cash is pretty small? Similar for the percentage of transactions that happens physically.
yes, but currently only licensed financial institutions (e.g. banks) can hold accounts directly at a central bank. You, as a private person, can't. CBDC will give you that capability too.
The main difference is that physical money exists as a liability on the balance sheet of the central bank. That is special however. Because - as you say - most of the money in existence is digital. However that digital money - ie. your deposit - exists as a liability of a private bank. Meaning if that bank goes bust you are only guaranteed to get back the amount that is insured (probably something like $100k in the US).
To me it seems a little similar to when I introduced my manager to the idea of agile programming 17 years ago or something. He understood the "faster iteration" part and didn't hear anything else really. Here they have the idea of making a currency "digital" but just see it as mainly enabling the broken model they currently have.
Personally I think something like solutions built on Ethereum 2.0 have the potential to really integrate more real-world information and finer-grained control for society.
Money is fundamentally a technology and it should be a high technology.
But like with everything else, there are extreme differences between the outcome of divergent designs.
CB's have jumped the shark with CBDC's… decentralized self stabilizing stable coins are already being used for loan origination in emerging markets for farmers where traditional banks (who CB's are reliant upon in every jurisdiction) have had no interest… this is the type of thing I was waiting for when I jumped into BTC back in 2012…
Moral hazards of TBTF/TBTJ and propping up zombies can only get you so far…
Readit News
1. Austrian economics is right, Keynsian is wrong.
2. Central banks are introducing ledger based currencies to increase surveillance of consumers, using the strawman argument about China.
On 1), the pandemic has shown that government spending works to keep an economy from failing. The old inflation argument has been proven completely false. If anything, what has been proven is that a greater distribution of wealth is needed as Amazon and online wholesale and retail take over.
The boom in online sales is a superprofit, driven by a windfall that government public health measures closed other sales channels. Those profits should be subject to a windfall tax to reduce that concentration.
On 2) Central Banks are looking at ledger based currency as a way to allow more distribution channels beyond the existing retail banking network. It allows greater freedom for financial offerings by removing a layer of distribution.
In a way, ledger based currencies are the "Amazon" of money distribution by central banks. It allows them to push money out when needed to multiple outlets, while still maintaining regulatory control.
If anything, it's a "free but regulated market" at work.
I find your arguments very naive. You entirely ignore the misuse of governmental power - history has shown us. Also please consider that increasing the money supply steals money (the value of money) from everyone's checking account over the long term. At the same time consider that QE money is not retrieved by the people who need it most (see cantillon effect).
It's worse than that.
If inflation was uniform and instantaneous, expanding the money supply would just result in a corresponding change in all prices and account balances. It'd be like trying to redefine the litre in order to get more gas from the pump. As such, the state wouldn't bother trying to change it.
Inflation "works" insofar as it allows those who receive the new money earlier to buy goods before the suppliers realize their prices are too low for the new money supply, and in so doing drive up the prices faced by those who receive the new money later. The aggregate effect is to transfer money from those who receive the money last to those that receive it first (banks, financial institutions, forex, etc.)
Inflation measures the general price level in the economy (in the form of a basket of goods), not the prices of individual commodities. The inflation in Austria has been at a steady 1-3%[1] over the last decade, roughly in line with inflation targets. Housing prices have risen, like in many other regions, due to a lack of supply of housing in the market, not changes in the money supply.
These vague rants about governmental power are exactly what makes it to read any of these Mises articles with a straight face, it is nothing else but libertarian ideology.
[1]https://www.statista.com/statistics/375291/inflation-rate-in...
The most fundamental hurtle to distribution is that people don't wanna! When you have a bunch of likes, giving them away sounds like a good idea, but in reality it means a) reducing your own value (unfairly), and b) increasing someone else's value (unfairly).
I personally have another solution, that I've never heard articulated, which I call "The Enough Number". It's a number you individually decide is enough for you, after which you will choose not to work any further (at least, not for money). This achieves a kind of de facto redistribution since, theoretically, someone else will step in to make the money the retiree is no longer making. Another way to put it is that it creates an artificial scarcity of competence, or it means that competence-for-hire decays over time in a way that is beneficial to society.
The only way for this to work, IMHO, is if you get some social status at Davos (free VIP entry for life? A medal?) for having a achieved Enough. Or maybe a publisher can arise, called "Enough Press" where such people can get a book deal.
FWIW my own Enough Number is $10M. This is still quite high but it reflects my upper-middle class sensibilities. This would be enough for a beautiful 1500 ft^2 house in Laguna Beach, a 30' wooden sailboat I partner on with a couple of neighbors, and I'd probably spend my time teaching neighborhood kids how to program and make things in a beautiful, sunny space filled with all kinds of very cool and dangerous components.
Politically, this helps focus me on the desired outcome, where the Earth is populated by people who routinely achieve Enough at 30, and spend most of their lives raising their kids, traveling, telling stories, eating good food, reading and writing. The really duty driven folk would find longer-term work at the EPA or the Justice Department or on space projects, etc. I would expect intellectuals to have the easiest time of it, because they could become adjunct professors. Celebrities and business people would struggle, I think, because the attention is the juice, and you can't every really have Enough!
[1]: https://en.wikipedia.org/wiki/Great_Depression#cite_ref-Rand...
1. https://www.clevelandfed.org/en/newsroom-and-events/speeches...
Also, inflation in consumer goods can show delayed as well. And assets are already inflated. It’s a bit too early to say with confidence, that the stimulus prevented the economy from failing.
At this point in history, how can anyone claim that Keynesianism is "wrong"?
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
* https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...
I'm sure that there are nuances in the model that can be more or less accurate, but the idea that (aggregate) demand drives economic activity, and that (central bank) interest rates and government (stimulus) spending effects economic activity seems fairly certain. Especially with everything we've seen over the last ~20 years: Fed-driven US real estate bubble, post-2008 economic recovery, lack of inflation due to low/zero rates even with lots of "printing money", austerity caused economic slowdowns (in the EU).
It's been one giant economics petri dish of experiments. How has Keynesianism failed? Non-K folks were predicting all sorts of problem, and yet the Ks were saying 'it'll be fine':
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
Full-employment is very easy to achieve for the government, if that is the government's only goal. Create artificial demand for ditches to be dug, and then hire people to dig those ditches. The fundamental question is not how to generate artificial demand, but how to generate artificial demand that succeeds at generating useful value.
Now, that spectrum has a range of answers. Sometimes you don't really care about value, or you take value on faith, e.g. when constructing public infrastructure works. They put people to work, get people spending, and everyone agrees that the country is in dire need of infrastructure improvements right now. There are, however, two non-infrastructure extremes: a) spending money on strong companies that will become stronger (instead of failing due to temporary unavoidable circumstances), but if anyone knew for sure which companies these were, the government wouldn't need to spend any money at all, investors would step in and pocket the profits. Then there's b) spending money on weak companies that would've failed in a year or two anyway, and emergency bailouts only forestalls the inevitable, wasting money and time and creative potential for nothing.
Now most companies are on a spectrum, which means that the strategy of such wide-spectrum spending is to offset the losses of boosting weak companies with the gains made by strong companies, overall.
Will it work at generating (net) useful value? Maybe. If so, then the currency is tied up in the extra value generated, and we'll avoid inflation. If not, then we have far more currency in circulation for the same amount of value, and prices will go up in tandem. Jury's still out.
That’s why there would need to be a wealth/income tax to redistribute in order to provide the UBI in the first place.
This seems to be an attempt at corralling a market by offering something entirely unfit for purpose, but marketed as being backed by the ultimately trustworthy (for surface-level-only reasons of "well, we've gotten you this far") Central Banks, and therefore immune to failure.
What can it offer that doesn't already exist and also provide any consumer benefit?
The article seems to answer that: nothing, in fact, less than nothing.
Cryptocurrencies are anathema to Central Banks, so any embrace by the Central Banks must be looked at as a defensive reaction to a changing landscape.
It does.
What purpose? If you're only interested in a transaction processing system I don't anyone thought that cryptocurrencies were going to be an efficient alternative to a centralized ledger.
Dead Comment
>Economists of the Austrian school understand, that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism.
The demand for austerity is a fetish of power abuse and discharge of guilt by claiming only the best motives.
Disgusting.
The people cheering on continuously increasing government debt are cheering on impoverishing their children and their children's children to temporarily bolster their own living standards. To me that seems disgusting, robbing the future to pay for excess in the present.
Deleted Comment
Dead Comment
This can be said about any technological innovation since the cave age. It's evil because it could be used for evil. I, for one, don't appreciate this kind of arguments.
For me personally CBDC has two big advantages
- reduced risk (central banks can't go bankrupt)
- commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.
Central banks have been against direct accounts for retail for this reason, because they didn't want to be in the business of retail lending as well.
What would be the alternative there? It seems unlikely that central banks would go into the business of vetting and giving out small business loans. Could a commercial bank function with only giving out loans and no deposit (I guess it would get loans directly from the central bank instead of balancing its balance sheet with deposits?)
As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
Indeed, there have been certain periods of time where privately issued money / bank deposits were “safer” than central bank or government issued currency. Also keep in mind that bank deposits are not a promise to pay base money as people mistakenly believe. It’s just that commercial banks are a market maker between their money and the government/base money and it just so happens that the exchange rate is 1:1 unless the solvency of the bank, central bank or government is brought into question. Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan, you swap your IOU (a debt from you to the bank - the bank’s asset) for the bank’s IOU (debt from the bank to you - bank’s liability). You do this because the bank IOU is readily accepted by everyone and yours isn’t. If you just have a deposit, you get it by swapping the IOU from another bank or an IOU from the government (notes and coins) for an IOU with the bank you hold a deposit with. Note that the deposit is not your money either.
Sure. But you don't simply get a loan. A bank (account manager) will make a decision whether they want to give you a loan (with a certain interest) or not. And I don't have any influence on that "decision". This is what I mean when I say "commercial banks invest my money on my behalf without me having any control over the process".
That sounds like a failure of politics and regulation; something that technology is a good workaround for, but a poor solution.
Technology can be a catalyst for increasing competition between banks. There might be another (regulatory) way to do it. Whichever gets us there faster.
Deposits in commercial banks can then be treated as bank risk capital - where the depositor always risks a loss.
I don’t actually know for sure, but surely the percentage of fiat money that exists as physical cash is pretty small? Similar for the percentage of transactions that happens physically.
yes, but currently only licensed financial institutions (e.g. banks) can hold accounts directly at a central bank. You, as a private person, can't. CBDC will give you that capability too.
Personally I think something like solutions built on Ethereum 2.0 have the potential to really integrate more real-world information and finer-grained control for society.
Money is fundamentally a technology and it should be a high technology.
But like with everything else, there are extreme differences between the outcome of divergent designs.
Moral hazards of TBTF/TBTJ and propping up zombies can only get you so far…