One of the great questions of our time is whether central bank independence is really still a thing.
Yes, of course, in principle it still is. But in recent post-QE, ESG, Covid stimulus and climate-agenda years, the lines between government policy and central bank policy are becoming ever more blurred. This becomes clear when you hear the likes of Christine Lagard and Mark Carney putting climate change on the top of central bank agendas.
This blurring, however, is only likely to get blurrier with the dawn of CBDCs, which will undoubtedly move central banking even closer to government policy making, specifically in terms of capital allocation.
Over in the United States, the recent Congressional proposition to have the US Treasury issue the digital dollar instead of the central bank hints of the strange new conflicts the old government/central bank power balance is facing. On one hand, having the Treasury control the digital dollar in truly digital bearer form has the potential to protect privacy and dollar neutrality in ways the central bank — being charged with policing anti-money laundering and know-your-customer rules in the banking sector — might not be able to. On the other, it transfers even more control of money multipliers and money creation over to the Treasury.
The risk that CBDCs introduce an era of gosbankification (as I’ve been calling it) is not immaterial. But it’s also worth considering what might happen if the central bank was to remain truly independent in a CBDC era. Historically, central bank independence has been rooted in the need to keep a check on potential government profligacy. With CBDCs, however, the risk grows that central banks take on the power of government Treasury departments directly and that in this way unelected officials become charged with determining how public spending is distributed in the economy.
You might think that’s impossible given that the central bank has no power to raise taxes. But in the new digital CBDC era, the ability to tax might become commensurate with the ability to repress by digital limitation or access denial.
After all, if a tax is a mechanism which transfers spending/consumption capacity from the private sector to the public sector, imagine what repressing an individual’s ability to access specific goods or services can do with respect to transferring spending/consumption from both the public sector and private sector, and over to favoured central bank entities?
Those who benefit from a low tax rate might find it impossible to spend their surplus cash on luxury goods because they have been deemed persona non grata by the central bank.
Alternatively, those being hurt by high taxes might be given far more spending optionality with the limited balances they have left than everyone else?
When money loses its political neutrality, inevitably the political power of those issuing money rises with it. This subtle power transference away from the public body may be one of the biggest the unintended consequences of money’s deneutralisation.
As Matt Taibbi noted this week about PayPal’s growing power to determine who gets to spend money and who does not (The Blind Spot emphasis’):
As MintPress founder and executive director Mnar Adley points out, the current era of content moderation — characterized by private platforms either overtly or covertly working with government to identify accounts for censure — really began with PayPal’s historic decision in 2010 to halt donations to Wikileaks. In that case, PayPal acted after receiving a letter from the State Department claiming the site’s activities were illegal.
“PayPal banning donations from WikiLeaks really set up the blueprint for today’s censorship,” Adley says.
Lauria believes PayPal is basing a potential claim on his company’s funds on a list of restricted activities in its service agreement that includes providing “false, inaccurate or misleading information.” He notes, of course, that “false” is “what they think is false, that is,” which is troubling for a pair of big reasons.
One is the ongoing possibility of government or law enforcement involvement in fact-checking decisions, as PayPal announced just last year it would be cooperating with authorities in a content moderation campaign. The other is that the thread connecting the recent affected accounts — which include the former RT contributor Caleb Maupin and the host of the Geopolitics and Empire podcast Hrvoje Morić, among others — is that they’re all generally antiwar voices, who’ve been critical either of NATO or of official messaging with regard to the Ukraine conflict.
If withholding capital via ESG initiatives can influence corporate practice, consider what a central bank with an investment mandate that stretches beyond the government bond sector — alongside an avowed political agenda (directed by unelected officials) — might be able to achieve?
These are fascinating issues. Unfortunately they will remain below the radar until someone like Elon Musk sees fit to buy PayPal in a bid to neutralise it again. But even then, that will do no good in a CBDC era.
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