The Central Bank Fallacy And Why CBDCs Are Not A Threat

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We are conditioned to believe in what is presented to us. Critical thinking certainly is a lost art. We are also trained to respect authority. All of this leads to people buying into things as they appear instead of as they are.

Take the President of the United States. The term was once "most powerful man in the world". Does anyone believe Biden is fully in control of the country or even the White House? Many questioned it with previous Presidents (George Bush 2) but it is now evident.

The same holds true for central banks. We are conditioned to believe in the power of this institutions. After all, they can "print" as much money as they want, or so we are told.

In this article we will reveal the central bank fallacy along with why the idea of central bank digital currencies (CBDC) being a threat is misguided.



Death In The 1950s

Did you ever hear of the Humphrey-Hawkins Act?

This is the act that tasked the Federal Reserve with full employment. That is what it is known for. However, buried in there is another major objective: for the chair to report to Congress on the money situation.

It was a bill that became law in the 1970s. The U.S. was battling the Great Inflation and, of course, Congress wanted some answers.

At the time, the challenge was that few were aware of a system that was about 2 decades old. It was a money creation mechanism that was not overt to the political establishment, nor to the central bankers. By the late 1960s, there were a few hearings surrounding the topic, without much revelation.

The essence of all this is that the central bank model was basically dead by the 1950s. It was simply too limited and the banking system knew it.

Around that time, post World War 2, globalization took place. This meant that we had an explosion in global trade. Over those decades, we saw numbers like we never did before. This would continue up to present day.

Central banks are national. Even the Fed, for most of its history was hindered by national boundaries. Monetary policy was ineffective due to this other system.

What was that? It goes by a few different names:

  • shadow banking
  • off shore dollar system
  • wholesale banking
  • Eurodollar system

Whatever name you call it, this dwarfed the central bank system within a couple decades. It operates outside the reach of any government or central bank. This is the power it wielded.

What Is Money?

This seems like an easy question. There will be many who believe they know the answer.

In spite of this, there was one person in June 2000 who could not answer it. That was the Chair of the Federal Reserve, Alan Greenspan.

Here is his statement in the FOMC meeting:

The problem is that we cannot extract from our statistical database what is true
money conceptually, either in the transactions mode or the store-of-value mode. One of the reasons, obviously, is that the proliferation of products has been so extraordinary that the true underlying mix of money in our money and near money data is continuously changing. As a consequence, while of necessity it must be the case at the end of the day that inflation has to be a monetary phenomenon, a decision to base policy on measures of money presupposes that we can locate money. And that has become an increasingly dubious proposition.


This blows up the entire myth of the central bank. Here is Alan Greenspan admitting a number of factors:

  • the Fed evening locating money is a dubious proposition
  • this is due to the proliferation of products
  • it cannot extract true money (conceptually) for medium of exchange or store of value

Basically, we have the Fed admitting it has no idea what money is anymore. By the time these words were uttered, this was a problem that was looked into for 25 years. What metrics could be designed to capture how much money is out there?

That presumes one can even find money.

This is why there is a M1, M2, and M3 money supply, all of which the Fed knew was useless decades ago.

Eurodollar System

International banks and financial institutions set up the Eurodollar system as a means to facilitate global trade outside the central bank system. The limitations of that evidently became clear to the bankers. Therefore, they set up a system of borrowing, lending, remittance, and cross-border payment using Eurodollars that were distributed by the U.S. after WW2.

Of course, the currency has long left the system and now using assets on balance sheets. In other words, in this world, collateral is money.

These is the proliferation of products that Greenspan spoke about. The private sector created mortgage backed securities (MBS), interest rate swaps, LIBOR futures, and a host of other securities that were used for these purposes.

It is also the blueprint for cryptocurrency.

The Eurodollar system was created to facilitate a growing global system that exceeds the boundaries of any single country. A central bank cannot ensure that money would arrive where it was needed and in a timely fashion on a worldwide scale. Under this system, that was handled.

We now have a digital realm that is exploding. Central bank money is relegated to banknotes and reserves. Neither of them is applicable to the digital world.

There are also challenges in the Eurodollar system. Due to the nature of banking, they are limited by their balance sheets. Since the Great Financial Crisis, these entities faced balance sheet constraint.

Cryptocurrency can solve this issue. While banks have limitations to what they can create, we can create a token for just about anything. This asset might not have much value yet, if it is tied to a project that gets 15 million users, suddenly it does. The network effect can have a huge impact.

There really is no network effect to be realized on interest rate swaps.

CBDCs Are No Threat

Everyone seems concerned about CBDCs. This is the grand plan that is going to usurp all other forms of money. Of course, if you listen to Twitter, this is right around the corner (the subject of an upcoming article).

Again, we have to look at the system. The limitation presently facing the Bank of Japan are still in place, even if they go with a CBDC. To start, the Yen, like most currencies, is already digital. So what does a CBDC do that the Yen presently does not?

Also, is a merchant in Argentina going to take payment in CBDC Yen from a company in Indonesia? Does anyone think the reach of the Bank of Japan is enhanced by this move?

Believing in central bank omnipotence is leading people to some misguided conclusions. The limitations of central banks and governments is clear. It was evident 70 years ago when the banks started to build another system. Since then, nothing has changed.

Alan Greenspan admitted they do not know what money is, where to find, and are not in control of it. So what does creating a CBDC do if the world of using money that the Fed (and other central banks) cannot even keep up with?

The central bank model died decades ago especially after we moved away from physical cash. Now, these same institutions are supposedly going to bring a CBDC to the table. How does that solve their basic issue?

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Critical thinking certainly is a lost art.

This a major weapon for any kind of subject. It's very sad to see people failing to know and take advantage of opportunities due to this type of alienation.

Very true. You had it to them and they ignore it.

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Perception is reality in this case. Belief in dollar constitues its value. Belief in US gov constitutes its power. They know about.

However their ability to project certain perception is lesser amd lesser.

Belief in US gov constitutes its power.

The gov't has nothing to do with the belief. It is the economic power tied to the USD.

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The economic power is a solid base for belief of people all around the world ;)

the main issue with CBDCs is that they facilitate the ability to control who spends what money where. while this might not seem like a problem now or likely to happen in real life - covid should have at least shown most of us by now that very evil groups are primed to engineer and utilise 'difficult situations' in order to push ideas onto the population which they would otherwise never accept. alternatively, the system can be rigged to make CBDC usage much cheaper than alternatives in order to speed up adoption and controls/limits can be added later once enough people have abandoned other alternatives.

It depends upon how they are designed and set up. That is a likely outcome although not guaranteed.

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The core of the problem is that money is a form of control and the people behind it don't want to lose that power and control.

There should be a global currency adopted by all countries, but not tied to any particular country. A currency based on global production (not like BTC). A utopia?

The USD already achieved that status. Most of the USD production is outside the US. That said, it is controlled by the bankers.

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Utopias are sadly just a fantasy and likely impossible on many scales for the simple fact that we are human and will never agree nor get along.

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I do appreciate the perspective you bring here, I’ve been pretty scared of the implications of CBDC but I suppose it’s like any system where they will try hard to push the adoption but so many people are aware of it that it will likely not be able to have the intended effect. Then there’s also chaos theory in that things can be planned but not go correctly because that’s how things go.

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You will have to read my latest article. I blasted the CBDC are about to roll out narrative.

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Money is a complex subject that I've developed the attitude to rather listen and learn rather than believe I know.
If am not mistaken, Nigeria tried the digital Naira and made a fool of itself.

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If am not mistaken, Nigeria tried the digital Naira and made a fool of itself.

THey did bring it out with great fanfare and not a ton of success. There were challenges to say the least.

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I guess it doesn't solve the basic issue at all. It merely adds another layer to their monetary system. CBDCs will fall short in rivaling cryptocurrencies because they have some limitations that crypto doesn't have.

Sorry, I can't comment on your points about money. As usual, that's a bit over my head. I read what you write, but I don't know how much I process it haha. But as to your opening comments about Biden and Bush:

Do any world leaders really have the power we think they do? As a student of Japanese history, I can look at every major figure (emperor or shogun, whichever side had control at the time) and there were always shadows behind him that had the real power. There were only a small handful that actually had the power they appeared to have, but most were controlled from the shadows. I can't imagine it is much different in today's world.

World leaders tend to overestimate their importance, no matter where they are. The key is people are starting to realize the president is just a puppet too.

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At some point physical cash will be removed and I wouldn't be surprised to see most transactions done digitally. The only problem I see is that people can get cut off from the system but I guess that is why there are also other alternatives out there as well.

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Very informative piece, Taskmaster. I learned some new things i did not understand fully before. Your quote from Greenspan reminds me of how Ben Bernanke testified in front of Congress that he did not view gold as money..

The absolute idiocy of his comments haunts the US economy to this day, as the "Dollar" was digitized decades ago, and then eliminated from existence through the creation of the Petrodollar backed by Saudi Arabian oil & enforced by the US Military-Industrial Complex.

The fact that it's called a "Central Bank" Digital Currency is the ultimate fear porn tactic. It's ONLY for central banks and their subservient national/domestic banks. They aren't for central bank to central bank transactions - that's what the BIS is for, and has been, since its creation in 1918 following the Treaty of Versailles, to ensure the protection of gold bullion holdings that were previously held in individual "sovereign" countries' banks/treasuries.

CBDCs are a tactic for totalitarian mind control more than anything.

FedNow is merely a 21st century ploy to remove friction between banks, nothing more. It won't compel bank account consumer holders to accept a CBDC as currency, nor will it force conversion to a "Digital Dollar" when the Dollar does not exist in reality. If there are only ~$2.7T-$3T in paper cash in existence, there is 3x as much debt from the US government held by foreign governments and banks. It's all a bad joke at this point

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FedNow an nothing more than an inter-bank payment system. The end user has nothing to do with it other than transferring commercial bank money (digital dollars) to another users.

through the creation of the Petrodollar backed by Saudi Arabian oil & enforced by the US Military-Industrial Complex.

This is a myth too. To believe in the Petrodollar is foolish. This is not where the USD's power comes from.

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well, the 50-year agreement made between the Saudis and the Americans established a "backing" of sorts, if never actually real or tangible. I'e always believed the USD's power came from the fact that any country seeking to do business outside of it was invaded, overthrown, and brutally destroyed by the US military, a la Iraq, Afghanistan, Libya