[triangleman]

Reading Matt Levine's latest column on this CBDC was sort of mind blowing. With a truly centralized digital currency the Fed would basically monopolize all bank deposits (why store money in the bank at all when your digital wallet is perfectly safe) and destroy the entire banking sector.

So they are forced to decentralize the currency to some extent, so that banks are the ones to actually issue the currency (after borrowing it from the fed).

[6gvONxR4sf7o]

Or couldn’t it force banks to offer better rates on accounts? If the Fed will store your money for free, then the banks would have to offer a few percent return to get you to lend to them.

[pessimizer]

This is literally the only reason I support it. Banking, debit cards, and paypal are just private taxes.

[rvense]

Exactly. CBDC is not a response to cryptocurrencies. It is a (belated) response to the fact that the way cashless economies have evolved has basically privatized money-as-infrastructure.

The privacy implications of CDBC are a real problem, but the rapidly approaching end game of the current slippery slope is one in which, among other things, all participation in the economy is gated entirely by private banks. No sovereign country should accept that. And yes, any real implementation of a blockchain as a day-to-day cash replacement will have the same problem. These are legal problems requiring a legal solution, not a technical one.

[jt2190]

I think you’re talking about his column from Tuesday [1], which talks about different research at the Fed [2] that suggested that there is a trade off between “credit provision” (i.e. private lenders taking a risk and extending credit to their customers who they have relationships with) and “stability”. In a credit crunch, investors could flee to a CBDC and make the crisis worse.

[1] “The Fed vs. Stablecoins” https://www.bloomberg.com/opinion/articles/2022-02-01/hedge-...

[2] “Stablecoins: Growth Potential and Impact on Banking” https://www.federalreserve.gov/econres/ifdp/stablecoins-grow...

[wolverine876]

> why store money in the bank at all when your digital wallet is perfectly safe

Because banks lend the money out, earn revenue from that, and thereby pay you interest. Banks aren't vaults; they are money circulation machines. Their business is finding the best investments, which creates efficiency in allocation of capital in the economy.

[selfhoster11]

Banks in the UK pay out a maximum of 1% interest on even the best savings accounts (i. e. the return doesn't even keep pace with average person's PoV inflation). I am skeptical of this explanation for why we should let the banks hold our money. Or indeed remain alive as anything but a source of borrowing.

[wolverine876]

> Banks in the UK pay out a maximum of 1% interest on even the best savings accounts (i. e. the return doesn't even keep pace with average person's PoV inflation).

Interest paid on deposits is a free market (generally speaking); if that rate isn't worthwhile to people, they will start leaving and the bank will raise its rates.

> I am skeptical of this explanation for why we should let the banks hold our money.

You aren't 'letting' them and it's not a collective decision. You personally choose to give them your money. Put it elsewhere if you like.

> Or indeed remain alive as anything but a source of borrowing.

They can't lend money without deposits. The deposits are the money they lend.

[selfhoster11]

> if that rate isn't worthwhile to people, they will start leaving and the bank will raise its rates.

No, that is evidently not happening. When I said "banks", I meant "literally all banks" (minus tiny regional credit unions or the occasional fluke that might give you up to 1.2% - wow, that is so much money, I could retire on it). People generally don't move banks either. They tend to stay with whomever they started banking first.

> You aren't 'letting' them and it's not a collective decision. You personally choose to give them your money. Put it elsewhere if you like.

My main alternative to holding cash in a bank is cryptocurrencies (which are accepted ~nowhere), or holding my money as cash. Handling cash has been in decline even before the pandemic, and nowadays I very rarely see people pay cash. Assuming that cash remains on the current trajectory, banks will become the only mainstream option.

> They can't lend money without deposits. The deposits are the money they lend.

They have enough money saved up in their coffers for that. I also can't imagine that most loans for a higher value than a credit card account would be entirely unsecured. This is especially true for house purchases - it's generally impossible to buy the house you want without a mortgage, and the house is what you lose I'd you don't pay them back.

[socks]

> They can't lend money without deposits. The deposits are the money they lend.

I am fairly certain this isn't true, at least not in the US/UK.

[guiand]

It’s somewhat true in the sense that banks need to keep some fraction of their deposits in cash as reserves (the “reserve ratio”). So if they lend money it needs to be backed to that extent by their deposits.

[asabjorn]

A FOIA request to the fed about their stimulus spending from 2008-2010 was just released, and in this period the fed spend nearly 30 trillion to bail out banks so there being a separation between it and the banks is questionable

https://youtu.be/zx3NIAWmgXg

They were authorized to print 3 trillion, but actually printed 30 trillion

[vasco]

Banks don't make any money from your accounts. In fact your money in cash accounts is a liability to the banks. Banks also do not hold mortgages, they sell them as soon as the ink is dry. There's a lot of misunderstandings about the current banking system in this subthread with knowledge of what banking was decades ago. No banks would go out of business from this.