Do you know what a central bank digital currency is or how a cbdc might work plenty of people are talking about cbdc’s today, but most people don’t understand how it’s different from money today because as we look around and we make our payments we get our paychecks and we send money. It’s All Digital anyway so what is the difference between today’s money and a central bank digital currency and why is it that I always say that a CBDC is a tyrant’s wet dream ready let’s dive
There are four types of money that have been used throughout history or that potentially might be used in the future one of them is commodity money another one is commodity-backed money another one is private Ledger money and another one is public Ledger money these are the only four types of money that might exist or have existed in the past.
Let’s start with commodity money this is very simple this is seashells this is gold coins this is silver coins this is the way that the world has operated for thousands of years up until relatively, recently you’ve got your gold coins your silver coins your copper coins and you trade them for goods and services the commodity itself is the money number two we have commodity backed money and this is relatively newer within just last couple thousand years and it’s become more and more popular throughout the more recent history up until a few hundred years ago and this is where Banks whether it’s a local Private Bank a central bank has the gold in storage the silver in storage the commodity in a vault and they give you a piece of paper that says hey you can come get that commodity at any time so instead of the commodity actually trading as money something else trades as money as a proxy for that commodity and so so that paper trades and the paper is the money but at any time you can go get the actual commodity so that paper is backed by the commodity this type of a system became extremely popular a little over a thousand years ago and centralized more and more and more until it failed in 1971 when the last commodity backed monetary system the gold exchange standard that started in Bretton Woods ended in 1971 .
When the United States closed the gold window this meant that all the pieces of paper that were circulating around the world that said “hey you can go get your gold from the United States government” if you want ceased to be redeemable for the commodity and the paper became the money by itself this led to a hybrid of the two systems over the last 50 years between commodity money and commodity-backed money but instead of gold being the commodity debt became the commodity and so at the foundation instead of having gold that money was created off of you have U.S government treasure series, you have government bonds government debt as that Foundation that then dollars are printed off of and so you have paper dollars that act like a commodity themselves, because you can trade that actual paper as money and it’s not redeemable for anything but in the financial system digitally speaking the debt layer is the foundation layer. Which acts just like the gold commodity used to now this has obviously led to many many problems over the last 50 years many Global Financial crises episodes of hyperinflation sovereign debt defaults and other Financial crises for the last 50 years many people are now calling for a new monetary system some people are pushing for a public Ledger monetary system some people are pushing for a return to real commodity money and some people are pushing for private Ledger money so let’s talk about those last two that we haven’t talked about yet public and private Ledger money starting with public Ledger the current common example of public Ledger money is Bitcoin but in order to understand Bitcoin.
We have to go look at the original Bitcoin Rye Stones these were large donut-shaped rocks that the Micronesian island people used as money now you might be thinking hey wait this sounds a lot like commodity money not so fast these were about eight feet tall sometimes larger sometimes a little bit smaller which meant you couldn’t exactly put one in your pocket and take it to the store and slap it down on the counter no these were public Ledger money examples because the entire Village the entire Community had a verbal and mental agreement on who owned these Stones so there’s one big Stone in the middle and John owns that stone now if John wants to buy a cow he needs to get the island together.
It’s basically a list the entire Community understands there’s a verbal and mental agreement on who owns all of these large stones and that’s all a ledger is it’s just a list that has a record of who owns how much and it’s public because everybody is aware of it at the same time Bitcoin is just like this.
It’s the digital version of this type of monetary system anybody can go look and see all of the Bitcoin wallets that have a cert any amount of Bitcoin see how much they have and see where those Bitcoins came from before they were in those wallets all the way back to the very beginning it’s like an Excel spreadsheet that everybody has a link to access but nobody has a link to edit everybody has a link and looks and sees okay this amount of money got transferred from John to Phil and then from Phil back to John and we can see all the transactions back to the beginning and every single wallet that has money it’s a public Ledger a public list and I know that’s been a long lead up but we have to understand those types of money in order to really grasp what a central bank digital currency is and how it works because it is a private Ledger monetary system this means that it is not a commodity money where there is an actual physical thing in a vault it is not a commodity backed money where you can go redeem your money for something of value it is also different than a fiat currency like we have today which is a hybrid a monster Frankenstein hybrid between a commodity money and a commodity backed money based on debt because you don’t have any foundation of that monetary system built on government treasuries government debt a central bank digital currency instead is like Bitcoin but instead of it being a public Ledger it’s the exact opposite it’s a private ledger so imagine.
I have an Excel spreadsheet and this Excel spreadsheet has one row for every single person in the country and in every single row I can see who has any amount of money and how much they have and any transactions that have taken place between any of the accounts the rows on my spreadsheet but the key thing here is that it’s private so you can’t see this spreadsheet just me as a central bank the Federal Reserve I’m the only one that can see this not only am I the only one that can see this but I actually have control over this spreadsheet as well I can edit the spreadsheet nobody would know and nobody can stop me this means that if I want to if I decide to give somebody some X extra money I can do that I can just go into the Excel spreadsheet and say instead of a hundred dollars you now have a thousand dollars instead of a billion dollars you now have a trillion dollars it also means that I can subtract money from any account instead of a hundred thousand dollars you now have fifty thousand dollars so unlike a public Ledger where everybody can see it therefore nobody can control it or hack it or steal it or change amounts because everybody would know and put a stop to it a private Ledger centralizes all the control over that list there is no tie to any commodity any debt and so I can exercise full control over any account credits and debits mayor um shell Rothschild was credited with the quote give me control of a nation’s money and I care not who writes the laws the more you can control the money the more you can control everything this is because money makes up half of everything every single thing you you do all day long whether it’s work driving somewhere eating sleeping in a home that you rent or have your mortgage on everything you do the other side of that is money so the more control you can exercise over the money the more control you can exercise over everything you virtually have totalitarian control over every action and every decision and the flow of all resources in an economy this is why a cbdc is a tyrants wet dream
You’ve got all the possible data you’ve got all the power to make any decision you want you’ve got the control to enforce that decision you think people shouldn’t spend as much on a gas stop as you think that people of a certain race or ethnicity or gender or minority group need more money you can just credit them some more money you want to stimulate spending you can give people money that would expire you think inflation’s getting out of control you can just debit people’s accounts full control no accountability now I get it just because the potential to abuse power exists doesn’t mean that power will be abused so if you want to know the likelihood of that happening all you have to do is study history.