Also: “Tiered remuneration” means no privacy and negative interest rates.

The IMF is warning that with all these CBDCs about to launch, there need to be global inter-operability standards between them all, and they’re working on a global platform to facilitate just that.

Speaking at a conference of African central banks in Rabat, Morocco, IMF Managing Director Kristalina Georgieva said that there needs to be agreement among CBDC implementations,

“on a common regulatory framework for digital currencies that will allow global interoperability. Failure to agree on a common platform would create a vacuum that would likely be filled by cryptocurrencies”

Not to be outdone, the Bank of International Settlements (BIS) worked with seven central banks to publish YARP (Yet Another Research Paper) on CBDC policy, entitled “Central Bank Digital Currencies: ongoing policy perspectives”… (*yawn*).

The central banks involved were: Japan, Sweden, Switzerland, England, the United States, Canada, and the European Union.

The paper is mostly a snoozer:

“Development of CBDC work requires careful consideration and engagement with a wide range of stakeholders, including the private sector and legislators”… 

“To successfully meet its public policy objectives, a CBDC ecosystem should allow a wide range of private and public stakeholders to participate and, in doing so, deliver services which benefit end users.”…

“The complex design questions and the potential risks arising from the implementation of any CBDC require careful consideration.”

Until you get to the rather innocuous sounding Annexes, like “Box 2: Legal Considerations”.

This is where it starts to get interesting.

What are retail CBDCs, exactly?

The paper wonders: Are they cash? Deposits? Or something else entirely?

This is quite the question, because if CBDCs aren’t cash, there has to be a reason why they wouldn’t be. When you start to see where CBDCs are going: expiry dates, programability, social credit scores – what we’re talking about is almost a kind of anti-cash (my observation, not the paper’s).

Further, the paper wonders, would there need to be changes to banking charters, legislation or even the constitutions of the countries issuing them:

“Legislation may need to be enacted or adjusted to specifically authorise the issuance and distribution of a retail CBDC (eg changes to central bank charters/statutes, legislation in other areas related to payments or to the constitution itself)”

Who had “new Constitutional convention” on their bingo card for the roll-out of CBDCs? We do now.

Box 3:  What tools may be needed to manage stressed conditions?

Here we truly get a peak behind the curtain – and it’s all dressed up in that Davos-dialect of benign-sounding euphemisms that belie a Brave New World (like how “recontextualizing food chains” basically means banning the peasants from eating meat).

They get right to it:

“When considering potential tools and policies to manage stressed conditions (eg limiting or managing fund outflows from bank deposits), there are price and quantity control approaches, with a mix of the two also being possible”

Those would be your bank deposits. In this section they’re gaming out how to contain bank runs. 

“Quantity holding limits have the advantage of directly limiting the extent of potentially harmful levels of disintermediation (eg structural changes resulting from CBDC adoption that increase the cost or availability of credit across the economy), and being relatively simple to implement.

However, they also have disadvantages, such as potentially impacting adoption; this may happen if holding limits increase the risk of failed transactions occurring, or make CBDC transactions less convenient, especially if alternative forms of digital money (eg stablecoins) do not present similar limits.”

Translation: We can cap how much money SerfCoin you’re permitted to hold, so we don’t blow up the system with too much SerfCoin issuance, but if we do that, you may not want to hold SerfCoin, opting for stablecoins (and cryptos) instead – where no such limits would apply.

Implementing limits may also have knock-on effects on the potential functionality of CBDC. 

Technical solutions such as “waterfall” or “cascade” functionality, whereby CBDC holdings or payments that would breach a limit would automatically be transferred into other deposits, could be considered to ease the effects of being close to any holding limit/threshold. 

Translation: We can build in safety valves that would automatically move your money SerfCoin into other accounts, and even make such transfers obligatory. But that could get tricky, because that might technically be, well… theft. 

When I read what comes next:

Price-based measures like fees and tiered remuneration have the advantage of being more flexible by allowing for any size of transaction or holdings, albeit at increasing costs.

In principle, the decision about the amount of CBDC transferred or held above a certain level is influenced via incentives but still relies primarily on each user’s preference. However, price-based measures may permit larger inflows into CBDC in stress situations compared with holding limits as the fee or scale of negative remuneration required to dissuade runs may be very large.

Those are again quite benign-sounding terms, however if you look into it, it becomes apparent that terms like  “tiered remuneration” have very specific meanings within the body of academic thought around CBDCs.

Tiered Remuneration: eliminating cash, privacy and the ability to save

The ECB’s Ulrich Bindseil discusses this at length in a 2019 paper “Controlling CBDC through tiered remuneration” (in fact my money is on Bindseil being the main author of this BIS paper; only the central banks involved are cited on the cover page).

In his paper, the tools of “two-tier remuneration” are examined to mitigate “risk of facilitating systemic runs on banks in crisis situations”.

The paper acknowledges the CBDC role in the elimination of cash (banknotes) and that they effectively end anonymity in transactions and prevent both “illicit transactions” and “store of value”, because CBDCs – through tiered remuneration – “Allows overcoming the ZLB as one may impose negative interest rates on CBDC”.

To wit,

if digital cash is used to completely replace physical cash, this could allow interest rates to be pushed below the zero-lower bound…By allowing overcoming the zero-lower bound (“ZLB”) and therefore freeing negative interest rate policies (“NIRP”) of its current constraints, a world with only digital central bank money would allow for – according to this view – strong monetary stimulus in a sharp recession and/or financial crisis. 

This could not only avoid recession, unemployment, and/or deflation but also the need to take recourse to nonstandard monetary policy measures which have more negative side effects than NIRP.

However,

Opponents of NIRP will obviously dislike this argument in favor of CBDC, and will thus see CBDC potentially as an instrument to overcome previous limitations of “financial repression” and “expropriation” of the saver.”

Wow.

Later in the paper we get to what tiered remuneration means: the more SerfCoin you have, the lower your interest rate, even going negative beyond a certain point. It’s like a built-in wealth cap and tax at the same time, where the only way to avoid it, presumably, would be to spend it – thus shoring up money velocity.

It overlooks the obvious: that those with any meaningful amount of wealth would have the incentive to avoid storing any of it in a CBDC at all.

The BIS paper dropped around the same time a copy of the EU’s “Digital Euro Bill” was leaked and details published by Coindesk; notable in that is the provision that any digital Euro must function in an offline mode, protect privacy (i.e. be like cash) and must not be programmable.

It will be interesting to see which vision of CBDCs prevails (although the proponents of the BIS model could profess that tiered remuneration is more structural than programmable, but automatic and obligatory swaps of deposits to other accounts seems harder to rationalize)

That said, Christine Lagarde also clarified in April that “programability” will be done at the retail banking level:

“For us [central banks], the issuance of a digital currency that would be central bank money would not be programmable […] Those who can associate the use of digital currency with programmability would be the intermediaries — would be the commercial banks” 

…which gives us a hint at something else we’ve been pondering in our monthly coverage of CBDCs in The Bitcoin Capitalist (“Eye On EvilCoin” section): how will the big banks avoid being disintermediated out of existence when central banks create CBDC accounts directly to the consumer?

Maybe they’ll be the ones enforcing the expiry dates, negative interest rates, social credit scores and personal carbon footprint quotas and that will become the raison d’être of the Too Big To Fail Banks.

Today’s post is an excerpt from the my premium newsletter The Bitcoin Capitalist. Try it for a month here.

My next e-book The CBDC Survival Guide should be out this summer sign up for The Bombthrower list and get it free when it drops, and receive The Crypto Capitalist Manifesto in the meantime. You can also connect with me on Nostr or Twitter.

William Gibson’s most recent novel Agency, describes a type of “many worlds” tapestry of a multiverse as it exists after a catastrophe called “The Jackpot”. The main character’s POV takes place from within one of these “stubs” as they are called, which for some reason forked off from the “real” Earth timeline sometime after the 2016 US election.

Although Gibson doesn’t exactly strike me as a MAGA guy in real life, it is interesting to note that in the story, the “real” Earth timeline is one in which it’s implied that Hillary Clinton won the 2016 election (neither “Clinton” or “Trump” are mentioned by name anywhere in the book).  However, it’s also the timeline in which a global thermonuclear war erupted around the Syrian conflict.

It is this outcome which the protagonists, some of which are covert operatives from our future, are seeking to nudge the other stubs away from. In other words, it’s classic William Gibson, who’s enduring quip “The future is here, it’s just unevenly distributed” has probably garnered even more relevance of late.

In one of the early stubs, it is Trump who won the 2016 election, and although no nuclear conflagration occurred then, a series of rolling catastrophes remembered by history as The Jackpot, ensued. The Jackpot resulted in massive depopulation, the destruction of democracy globally, and a system of interlocking fiefdoms run by a new governance structure openly acknowledged to be a kleptocracy.

This idea that we were living in somebody else’s parallel universe oddly reinforced an inexplicable subconscious urge that began expressing itself in my own thoughts around the end of 2019, the idea that we were the bizarroverse that people often refer to in half-joking terms.

Somewhere, somehow, there is a much more rational reality, and we’re “The Bizarroverse” to that.

— https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpg E. Jeftovic (@StuntPope) December 12, 2019

As these thoughts expressed themselves I had some sense of this oncoming year becoming an inflection point in history, one of those years against which all future events would be retroactively measured “Pre-2020” or “Post-2020”, and for sake of expediency I’ll appropriate Gibson’s literary term for that inflection point, The Jackpot.

The Jackpot is what Chris Martenson and Adam Taggart have been converging on for years, before anybody ever heard of COVID-19. They said that the current conventional assumption, that the next 20 years would be a somewhat straight-forward linear extrapolation of the previous 20, was wrong. They didn’t know what the catalyst would be, nor did any like-minded commentators such as Charles Hugh Smith,  James Kunstler, John Michael Greer,  or even myself, when I intuited in Unicorn Winter that “Ground Hog Day was coming”.

By now it seems quite likely that the inflection point is upon us and that the Coronavirus was the catalyst to bring it on. The Great Bull https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpget of 2009-2020 or even 1982-2020, is over (each counter-cyclical bear crisis papered over by QE and ZIRP). This time, the Central Banks are out of ammo and none of the old moves are working.

The Jackpot is where we arrive when we run out of road to kick the can.

Over the next few posts I’m going to explore what various outcomes could look like after the Jackpot. These are not predictions. They are scenarios of what might unfold when certain key tenets, those articles of faith that have been taken for granted these last 20 years, break down and become irrelevant, or even toxic.

Scenario 1: Force Majeure:

In this scenario all predominant belief systems about governance and order such as liberalism, democracy, rule of law, free markets and capitalism break down. So do their accompanying institutions: political parties, nation states, currency regimes, even formal religious denominations.

This outcome witnesses the ascension and proliferation of the non-state actors. Imagine Facebook and Google having their own currencies – and paramilitary forces, while overleveraged, bankrupt nations rupture and crack up.

Countries become a balkanized hodgepodge of autonomous areas where control is contested between privately held warlords, clans or networks and remnants of regional authorities. If you want to get a feel for how the Force Majeure scenario plays out, get a copy of Neal Stephenson”s SnowCrash.

Scenario 2: Tin Foil Hats

This scenario is one where we posit (merely as a thought experiment) that the conspiracy theories around Coronavirus could be true. These range from it being a weaponized virus that either escaped, or was unleashed, to the assertion that the entire Coronavirus hysteria is a hoax, perpetrated by Global Elites (probably the Lizard People) in order to take down the economy and institute worldwide martial law.

In this scenario we might be in the early innings of World War Three, only the war isn’t being fought with bombs and bullets, it’s being fought with biological agents and weaponized financial derivatives.

Scenario 3: Mandatory Pollyana

This is where Central Bankers step in and once again save the day, injecting just the right amount of liquidity, pushing interest rates to the exactly correct level, possibly below zero. Policy makers unleash unbridled fiscal stimulus, tax incentives and deferrals, to be followed up with MMT and UBI.

In this version, global financial markets become, in the words of Ben Hunt “publicly owned utilities” – that are only permitted to go up. Short selling is banned. The world moves into a globally coordinated command economy.

Scenario 4: Good-bye Globalism

Is where multi-national corporations, so shaken from this Near Death Experience, realizing their error of betting the farm on just-in-time supply chains, labour cost arbitrage and having zero buffers, begin pulling manufacturing back home.

The smart ones start building cushions and shock absorbers into their business logic, and they begin to eschew leverage after being on the wrong side of a series of cascading liquidity implosions. In other words, businesses begin to transition themselves into what I called “Transition Companies” as posited in the inaugural posting for Out Of The Cave.

I consider this scenario to be the most desirable, but the least likely, especially if many of these corporations receive government bailouts.

Over the next days or weeks I’ll put try to find the time to flesh out each of these scenarios. It turns out that hunkering down can be a full time job unto itself, something I plan to write more about for the GC subscribers.  If you’re not already on the list and want to know about the rest of the Jackpot Chronicles and my thoughts around navigating your business through it, sign up for the list here.

My new book, Unassailable: Defend Your Content Against Deplatform Attacks, Cancel-Culture and Other Online Disasters is out now. Learn more about it here.

You can also follow me on social media:

• Mastodon
• Twitter