Proposals for a Democratically Accountable CBDC or Digital Dollar
Discussion
Yanis Varoufakis (interviewed by Evgeny Morozov):
EM: Are you familiar with the plans for the ‘digital dollar’ advanced by the likes of Robert Hockett and Saule Omarova, which, in essence, insist on the need to build a democratically accountable CBDC? How likely do you think the Fed is to implement something like this, especially given how much opposition – including from the crypto industry – there was for Omarova’s nomination to the Biden administration? We have also recently heard from Congressman Tom Emmer, who, while proclaiming that Washington should be building crypto with ‘American characteristics’, wants to prohibit the Fed from any experiments with a CBDC. One of Emmer’s stated reasons for such action was to ‘maintain dollar dominance’. What do you think is behind such proclamations? Do they mean we are likely to see Facebook’s earlier efforts to launch its own stablecoin – now called (ironically) Diem – given an official stamp of approval?
YV: The situation sounds complex but it is very, very simple. Most dollars, pounds, euros, and yen are already digital. The digitisation of money is not the issue. The issue is the monopoly of the payments system. Today, you use digital money (phone apps or plastic cards) to buy a cup of coffee at your local Starbucks. But, to do so, you first need an account with a commercial bank. In other words, to grant you access to digital fiat money, the state forces you to fall into the embrace of the commercial banks.
So, today, the state guarantees a monopoly over payments to commercial banks. And that is only one gift to the oligarchy. A second, even greater gift, is that only commercial banks are allowed to have an account with the central bank. So, when a recession hits, and the central bank decides to stimulate the economy, the central bank lowers the interest rate of the overdraft it grants commercial bankers – who then exploit this to profit from arbitrage (by lending the money on to customers at a higher interest rate). And when the recession gets even worse (as has been the case since 2008 and now with the pandemic), the central bank prints digital dollars or euros and credits them directly into the accounts the commercial banks have with the central bank. This is the definition of exorbitant privilege!
So, this is why Wall Street prefers to see the world explode, time end, or Armageddon arrives, rather than allow the Fed to proceed with the digital dollar: because a digital dollar would mean that every resident in the US, and anyone beyond US borders trading with Americans, will be granted a digital wallet. That would be detrimental to the power of commercial banks. First, because people would no longer be obliged to open a bank account with them (think of all the lost fees!). Secondly, because there will no longer exist a rationale as to why the Fed or the ECB, etc., cannot – when they think they must stimulate the economy – drop helicopter money on everyone. Why credit dollars only to the accounts commercial banks keep at the Fed and not credit the people’s digital wallets directly? Indeed, why give money to commercial banks at all?"