There is a movement afoot in central banking circles to shift from paper currency to digital currency.
Sounds convenient and probably like a good idea to many, but the goal from the central banking crowd has almost nothing to do with convenience.
Digital dollars would make the job of intervening in markets and manipulating spending and interest rates much easier.
Think about an economic stimulus credited to your government issued debit card that has an expiration date. How better to force consumers to spend than to give their money an expiration date?
Or what about negative interest rates? If dollars are digital, there is almost no limit to how much central banks could loot your life savings via negative interest rates. Paper currency puts a hard floor under negative interest rates.
Americans who favor liberty and economic freedom should resist the move to a digital dollar.
The WSJ reports here on the prospect for e-currencies. The emphasis is ours.
The most common justification, including in the latest report, is the decline in cash payments, which started well before Covid-19. The Riksbank’s haste to develop an e-krona has been fueled by Sweden becoming an almost cashless society. But this doesn’t add up: If the shift to digital payments required digital currencies, why is it already happening via cards and mobile applications?
In papers published this year, Riksbank economists also claimed that, in a crisis, a digital currency might give households peace of mind that they could transfer their money into state-issued assets, and therefore be less afraid of leaving it in their bank.
The opposite seems much more likely: If a digital currency offered the advantages of both cash—anonymity and security—and a current account—the ability to transfer large sums with ease—nobody would choose to hold money in a bank deposit. Even outside of crises, this could leave banks without retail depositors, their most stable source of funding.
Indeed, many early supporters of digital currencies, such as the Bank of England’s Michael Kumhof, are also known for wanting to reduce the role of those forms of “money” not issued by governments. This would include deposits, which are issued by banks and used as money. Reform proposals have so far been rejected by the public in places like Switzerland, but could be achieved in a roundabout manner if digital money issued by central banks ends up competing with bank deposits.
For banks, the funding gap would likely be filled by central banks and wholesale money markets. Far from increasing financial stability, as reformers claim, this would make banks more vulnerable. Lending to the real economy could be affected.
Read more here.