[vishnugupta]

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks.

Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that profit to depositors. However, each of these banking activities create risk, which is passed onto the deposit holders and is offset, to an extent, by deposit insurance. In low to zero-interest-rate scenarios, banks act as pure custodians as their revenues decline, which is why we saw EU banks charging negative interest rates, i.e., a fee, to maintain customer deposits.

There's a delicate balance and an inherent conflict between keeping money safe and earning yields, the two functions performed by a commercial bank. Customers don't perceive this conflict unless a bank breaks down as SVB did.

I think this crisis is the strongest yet reason to push for CBDCs as only a central bank can fully guarantee a deposit. In terms of systems design, this is a clear delineation of responsibilities.

CBDC: If you want safe custody of your money.

Bank: If you want to lend your money in return for a yield. And as with any lending, you take the risk of a borrower defaulting.

[nkuttler]

> I think this crisis is the strongest yet reason to push for CBDCs as only a central bank can fully guarantee a deposit

This makes zero sense. A CBDC doesn't have a stronger "guarantee" than normal central bank money, yet it has all kinds of negatives like total surveillance and control.

[mejutoco]

Exactly. And regarding

> only a central bank can fully guarantee a deposit

The buck stops at the government, as we are seeing with changing laws to allow Credit Suisse acquisition or by Biden and European representatives statements abou "doing whatever is needed" or similar.

[jpmattia]

> The buck stops at the government, as we are seeing with changing laws...

Not to mention the majority party in the US House is threatening default.

[guessbest]

The party in the House always threatens to not raise the debt ceiling if the POTUS is of a different party. It has been like this for decades.

[danaris]

I think if you actually look at the history of this, you'll find that it's almost always the Republicans who threaten not to raise the debt ceiling.

Certainly, all the notable debt ceiling crises listed here[0] were instigated by Republican Congresses.

[0] https://en.wikipedia.org/wiki/United_States_debt_ceiling

[ddulaney]

It didn't really happen as much over the last 4 years.

As they say, the deficit hawk is a seasonal bird.

[jjeaff]

No, it's specifically the Republican party that threatens to default on the debt ceiling if the president is a Democrat.

[HWR_14]

Just to be clear, those are two different things. The Biden administration's response is using powers granted to the executive branch explicitly to save banks. The Swiss government seems to be modifying their laws to save CS (by getting it acquired).

[pnut]

After some internet searching, apparently CBDC means "Central Bank Digital Currency"

https://www.investopedia.com/terms/c/central-bank-digital-cu...

[frozenwind]

CBDC is a another puzzle piece of a future dystopia. We're exchanging freedom for the sake of a security façade.

[ricardobayes]

On the other hand, imagine what level of services we could have if it wasn't for the tax dodgers and cash in hand payments. I reckon we could fund universal basic income just from whitening the economy, in any given country.

[ifyoubuildit]

I imagine we'd have a similar level of services, and the same level of urgency to raise taxes.

[v4dok]

Depends on the country. For countries with a lot of "black money" and corruption there is an obvious benefit. Taxes yield less because they don't capture the whole economy, as a result taxes are increased and get paid by the "idiots/ethical" which creates a vicious cycle. Now if tomorrow you had everyone paying taxes then 2 things would happen which would result in a new equilibrium. 1. The tax revenues would massively increase 2. People would push for lower taxes because suddenly they care more as their real marginal tax rate is the nominal one.

Would this result in more efficient spending of taxes in a corrupt economy? Not immediately. A lot of shitty people would get reach fast in the meantime, but the system would balance because people would no longer participate in the corruption directly as they used to.

Yes, you remove some freedom, but I am convinced that for societies that have a trust disconnection between the government and the people would be a net benefit (assuming democracy).

Additionally, comercial banks have been pretty shitty on providing liquidity to the real economy throughout the QE (at least in some parts of the west). They had their chance to not be a bottleneck, they missed it. Good riddance.

[sidewndr46]

crypto isn't some magic wand that just makes corruption go away. It'd just be baked into the new system from the get go.

[CapstanRoller]

I don't think the answer is that simple. Sure, cash users are an easy target here, but upon closer inspection things just don't add up. Targeting cash users would have some deeply negative side effects for everyone.

To quote patio11: "The optimal amount of fraud is non-zero". The financial system needs slack, otherwise it destroys itself.

https://www.bitsaboutmoney.com/archive/optimal-amount-of-fra...

[prottog]

Imagine if we just had a land value tax to replace all other taxes. Can't dodge that particular tax, unless someone is able to hide a piece of land from being seen.

> I reckon we could fund universal basic income just from whitening the economy, in any given country.

I reckon that no economy, no matter how advanced, is so productive that you can provide a systemic incentive for everyone to not produce anything yet still be guaranteed to be supported. Will some work even when they don't have to? Sure. Will more people not work than before? Almost definitely. Will this effect compound over time and topple the system sooner rather than later? Guaranteed.

[danaris]

There's an ample body of research on basic income now that indicates that almost everyone still works under it. The people who don't are people we shouldn't be requiring to work, like the disabled, new parents (still usually only one), and full-time students.

It is much more likely that the effect will fade over time, as people who are traumatized and exhausted from being forced to work terrible jobs for inhumane hours recover and once against find themselves ready to do something more active and productive.

[snapcaster]

Where is the evidence that isn't temporary, non-universal, or other clear confounders like that? Are you virtue signaling that you have inherent work ethics or things like that or do you _actually_ think people would still work if they didn't have to. Comments like this on HN make me think nobody here ever speaks to a real human

[danaris]

If you want evidence that is permanent and universal, guess what you have to do?

You have to actually implement Universal Basic Income on a large scale, and keep it going for decades.

If you aren't willing to support doing that because "there isn't permanent, universal evidence", then you're creating a catch-22.

There is evidence that is robust and scientifically rigorous. That should be enough, at the very least, to say that we should be doing larger, more extended trials, and to at least plant a seed of doubt about this idea that humans are inherently lazy selfish slobs.

As for "real humans", I've talked to plenty. I know multiple who are constantly frustrated that they are not allowed to work productively, because of disabilities they have that make them inconvenient to employ (as with many disabilities and chronic illnesses, they have good days and bad days: they can work very well some of the time, but can't commit to a schedule that the company controls, because they can't even commit to a schedule that they consciously control).

I don't personally know a single person who, if given the chance, would choose to abandon work of all kinds forever.

[webnrrd2k]

"Economic Whitening" appears to be suppressing the gray and black markets.

I haven't heard the term before, and thought maybe it had something to do with racial BS. (or maybe a teeth whitening campaign?)

[ss108]

Do you think the reason why we don't have that is because of a lack of money, and not a lack of political will?

[wwalexander]

What makes you think that the increased tax revenue would go to anything benefitting regular citizens?

[d1sxeyes]

Most EU banks have always charged a fee for maintaining deposits (at least for private individuals).

In the UK, banking is normally free, but on the continent, you normally pay for the account itself and any cards you may hold. Some banks may offer fee waivers for those whose salaries get paid into the account, or if you have a cardless account etc, but it is fairly common practice to charge a small fee for the bank account itself.

[AdamN]

In addition to the fee they are leveraging your deposits - and European banks are no less risky for the depositor than the US ones (just look at the 2008 era). Having a 'true bank' that does not leverage your money and has no investment risk would probably be useful to a certain segment of people but the assets would still have counterparty risk and everything else so in the end a very niche market since the best way to handle risk is to distribute to multiple counterparties, currencies, etc... and then you might as well get the interest from the money at that point since you've de-risked so much already.

[f_devd]

Since 2008 EU banks have gotten more stringent requirements per regulations compared to the US, the degree of additional risk is hard to know for sure without a large scale collapse.

[ericmay]

What are you basing this on? What are some of the ways EU banks (does it not vary by country?) have gotten more stringent requirements per regulations compared to the US?

[f_devd]

All EU banks (afaik) need to follow Basel III regulations, while smaller US banks don't have to due to lobbying

[spacebanana7]

A hybrid solution could be a grade of bank accounts whose deposits are backed 1:1 by short dated government debt.

You get most of the safe custody benefits of CBDC whilst minimising the costs of restructuring the banking system. Customers could still use all the same banking apps and branches.

Such a program could even be eased in over time by steadily increasing the proportion of bank balance sheets allocated to short dated government debt.

[JDEW]

Narrow banks. The FED didn’t like the idea…[0]

[0] - https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-...

[spacebanana7]

That's deeply frustrating. The FED's potential opposition about balance sheet control and reverse repo have clear weaknesses pointed out by the author you cite.

[drexlspivey]

You can already do that by buying a money market fund no?

[spacebanana7]

To the best of my understanding you can’t initiate payments with a money market fund using, say direct debits or visa/Mastercard. So they can’t replace an ordinary bank account.

[zaxcellent]

There are accounts out there which can function this way, often called Cash Management Accounts. Fidelity has one that works this way: https://accountopening.fidelity.com/ftgw/aong/aongapp/intere...

[thwayunion]

Can't replace it. But with some trivial API glue and a cron job, you can get away with storing next to nothing in the bank account on most days as long as all of your credits and debits are scheduled and upper-bounded. E.g., if the debit side of your entire financial life is payroll + rent + credit card bills.

But this shifts risk from your FDIC insurance to your SIPC insurance.

[kzrdude]

In the US there used to be the Glass-Steagall Act "effectively separating commercial banking from investment banking"; established in 1933 but it was partly repealed in 1999.

[i67vw3]

Could the Glass-Steagall Act prevented the 2008 banking crisis?

[rjtavares]

We don't know. Glass Steagall Act doesn't really deal with the fundamental problem with 2008, which was at its core an error in measuring potential risk of new finantial products. It could have prevented some of the worst impacts of that error, but we're not sure.

Here's quote from former Federal Reserve Vice Chairman Alan Blinder: "What bad practices would have been prevented if Glass-Steagall was still on the books? I've yet to hear a good answer."[1]

You know that saying: generals always prepare to fight the last war.

Finantial Regulations are like that too. We don't know where the next crisis will come from, and so we don't know if we're ready for it.

[1]: https://www.npr.org/sections/thetwo-way/2015/10/14/448685233...

[danaris]

The difference between war and financial regulations is that there is no reason that the conditions that caused a previous financial crisis can't reoccur if you don't regulate against them. It's less like war that way, and more like health: you don't say "well, I got salmonella poisoning last year, so that's the last war; there's no reason to be careful about cooking chicken all the way through now!"

If letting retail banks take depositors' money and gamble with it was a bad idea then, it's almost certainly still a bad idea now.

[nobodyandproud]

Wouldn’t Glass Stegall have made mortgage backed securities difficult if not outright impossible to create?

[rjtavares]

No. It could have prevented some banks from owning them directly, and that could have cointained their growth, but we don't know really.

Crisis would happened anyway for sure, but the scale could have been smaller. But it's hard to do what-ifs.

[vonmoltke]

Since mortgage-backed securities have been a thing since the mid 1980s, no.

[dsfyu404ed]

>CBDC: If you want safe custody of your money.

Not safe from the moralizing pricks (of which there is a surplus in our midst) who the executive or legislature will inevitably try to cozy up to by stealing my money on the basis of some attribute or box that I check.

[clarge1120]

The biggest challenge facing CBDCs (Central Bank control of Digital Currencies) is that any laws or regulations concerning them can be changed at anytime, without the consent of the governed.

See Credit Suisse.

[roenxi]

I don't think you're actually proposing anything with that CBDC statement - CBDC doesn't imply any particular policies or mechanisms. It is a non-phrase without a concrete proposal. What exactly is the central bank supposed to do here?

[hanniabu]

> CBDC: If you want safe custody of your money.

That's cash. CBDC is if you want no control over your money. At the flip of the switch you can be put on a denial of service list. Except unlike when PayPal does it, you can't just switch providers.

[msm_]

If you don't trust your government, how is it different than being arrested at the flip of the switch?

[hanniabu]

Accessibility

[cflynnus]

Thinking CBDCs are “safe” is extremely naive. They’re a dystopian nightmare. They’re every dictators wet dream. This is why Bitcoin matters. Bitcoin = freedom.

[v4dok]

An economy run on Bitcoin is an absolute dystopia. You reluinquish monetary control to a deflationary coin, being in the whim of Bitcoin whales. People who advocate for it, either are whales or they are stupid.

Ask south europe how well it worked for them having no power over their monetary policy.

[shagymoe]

Continuing this charade of "the government and banks are competent at monetary control" is more stupid. Inflation is theft.

[krferriter]

The USD and Euro are managed by central banks much better at monetary policy than random rich people trying to manipulate an asset market (like those for cryptocurrencies) because they have an untreated gambling addiction. The idea that US Dollars are less stable and reliable in terms of price trends over the long term than cryptocurrencies is just ridiculous. Small amounts of inflation is good for the economy. It incentivizes people to put their money stashes back into productive use, instead of just keeping it sealed in a box.

[shagymoe]

Bitcoin != cryptocurrencies. You might as well be comparing dollars and beanie babies. Define "much better" and for who because they're very clearly, very bad at monetary policy.

[AlexandrB]

If we define "theft" this broadly then employment is theft, taxes are theft, interest on loans is theft, etc. Meanwhile deflation favours early adopters forever, and while you could chide me for "missing the boat" that doesn't really work, morally, for people not yet born.

[scottiebarnes]

> Meanwhile deflation favours early adopters forever, and while you could chide me for "missing the boat" that doesn't really work, morally, for people not yet born.

The deflationary model favors savers over consumers, giving benefit back to people who are willing be patient by forgoing immediate consumption.

You seem concerned that early adopters stand to gain disproportionately from mass adoption. Well, what outcome would you prefer and how would we get there?

[v4dok]

This is myopic beyond reason. Inflation is now a thing so you care about it. The real problem lies in things that most western countries never had to deal with. What do you do when your country is not good at creating high-value products and services that you can sell to a premium to the rest of the world? What China did, you make cheap stuff. How do you make cheap stuff? You print more money and you devalue your currency. Inflation will make sure you make what you can in-house cheap enough. Now you can export it cheap as well.

This can't work with bitcoin. If your country can't export things in a premium you are F'ed. You can't print money to stimulate demand for local goods, your only option is to violently reduce the average quality of life enough that you will be wiling to work for less. Printing money creates inflation but it can also kick a positive spiral of demand/supply. While "austerity" has been shown to just make the problem worse by gutting demand in general

[enumjorge]

If Bitcoin had a history of stability your point would have more weight, but as it stands I don’t know how people can present it as a viable alternative with a straight face. Banks are having a crisis—-Bitcoin seems to have at least one every year.

[shagymoe]

If Bitcoin were the default currency, the value would not fluctuate, it would just slowly rise. Responsible savers would be rewarded. Irresponsible risk takers would generally be punished.

[throwaway173738]

You mean the people who bought in early would benefit.

[atlasunshrugged]

Couldn't you sub cash for Bitcoin here and have it make just as much sense? Also, isn't bitcoin highly traceable, especially for a sophisticated state actor?

[GenericDev]

Not to disparage the poster, but these type of comments always come across to me as astro-turfing.

At no point has anyone been advocating for a Central Bank Digital Currency (CBDC) and furthermore the only people who stand to gain from this are the powers that be. I'm vehemently against a CBDC purely because I like to play a thought experiment if I were from the 18th century and landed in the present day, how hard would it be for me to engage with society. A CBDC is 100% the anti-thesis to creating and supporting people.

In short, boo to OP, I doubt their legitimacy.

[retube]

central banks could offer 100% guaranteed deposit facilities without a CBDC.

[thwayunion]

I'm so confused by what role a CBDC is even supposed to play... why would the government establish a new currency pegged 1:1 to its existing currency? Why not just... allow normal Americans to keep deposits at federal reserve banks?

[maxwell]

CBDCs are programmable: whoever controls the CBDC can decide where it is or isn't spent.

[retube]

Well they could, but actual implementation would be via an intermediary commercial bank that held it's deposits with the Fed. Central banks don't want to have to deal with retail customers. But the result is the same.

[hkt]

> CBDC: If you want safe custody of your money.

> Bank: If you want to lend your money in return for a yield. And as with any lending, you take the risk of a borrower defaulting.

Ideally, depositors in a CBDC would also get at minimum the central bank rate.

[amelius]

Good analysis.

Similarly, the App Store mixes "Store" with "Content filter". We should be able to choose both independently.