Central Bank Digital Currency (CBDC) model is the best of the iterations of money in the financial future

WHY WE SHOULD COMMIT TO CENTRAL BANK DIGITAL CURRENCIES (CBDC) END PAPER MONEY AND CONVENTIONAL BANKING!

By Professor Gilbert Morris

Central Bank Digital Currency (CBDC) model is the best of the iterations of money in the financial future; the urgency of which has now arrived.

Four years ago, on a programme called “Essentials”, hosted by Hubert Edwards, I and my colleague - Central Bank advisor Mike Mckenzie, Malaysia - argued this point.

Here is what I contributed: CBDCs are not a panacea, but their role is far more disruptive than it seems even their adherents are willing to admit. The goal should be the absolute elimination of paper money and banks as we know them.

1. It would disintermediate banking and banks as we know them completely

2. It would recalibrate a proper equilibrium between the money supply and goods and services; whilst facilitating efficient multi currency transactions and trade finance

3. Such a platform on bespoke Blockchain could initiate in-system peer-to-peer lending and direct digital utility payments, with more comprehensive, fair and accurate regulation

4. It would require completely new standards for identity and Constitutional protection of both biological and digital identity as a new definition of human personage

5. For states whose currencies are PEGGED to the US dollar, a CBDC would allow for more disciplined aggregation and management of US dollars, since they’d be exchanged upon entry into the country for the digitised currency.

There are some critical issues which require constant monitoring and transparency:

a. Any issuance of a CBDC that runs indirectly through the traditional banking system amounts to an illegal tax; since its purpose would be to stave off conventional banking collapse; this preserving a 200 year old obsolete system that enriches the few.

b. Any conventional bank now building brick-n’-mortar buildings is developing into a false future, the urgency of which is already present and enervating.

c. For the efficient deployment of CBDCs, there would have to be free, reliable broadband, protected by bespoke - multi-redundant - power supply.

CBDCs in their development has been largely naive, thinking that the technological achievement of the CBDC is the accomplishment.

This is false: such innovations must nest in a legal and Constitutional context. As such, CBDCs require proper foundations Constitutional alignment for the following reasons:

a. The Central Bank could collect both data and metadata that would reveal every purchase, amount of purchase, location of purchase, items purchased.

b. This is both unconstitutional and would undermine democracy by robbing the citizen and any consumer of his or her right to privacy.

c. The disclosure of identities would mean governments could target specific consumers and enterprises for political reasons.

These issues are not insurmountable. Estonia has largely solved these problems - as I show in papers written two years ago - and they have done so in a manner that maximises options for broad currency digitisation, whilst enhancing Constitutional protection.

There would be benefits to data collection scrubbed by smart data analytics of all features of identity, perhaps even location: this would generate real-time real-life performance based creditworthiness; eliminating the need for ex-post 20th century backward looking credit ratings.

Moreover, the non-identifying data would produce additional benefits at scale: they would reveal patterns and flow of consumerism, accurate breakdowns of goods and services divides, provide accurate forecasting of taxes, and because of the efficiencies gained in US dollar sequestration, the management of the reserves supporting the zero-value dollar-PEG would become transparent, precise, and the reserves should see an uptick in its baseline aggregates!

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Standard & Poor’s (S&P) Has Placed Kerzner’s Atlantis Paradise Island Resort on a Credit Watch List with Negative Implications

If Kerzner was to sell additional debt, it could face higher interest rates

Kerzner On Credit Watch List

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas   

07/05/2004

Kerzner’s plans to carry out a $1 billion expansion of its Atlantis Paradise Island Resort has prompted the international credit rating agency, Standard & Poor’s, to place the company on a watch list that could mean a downgrade.

S & P said in a release Thursday that it placed its ratings on Kerzner, including its BB corporate credit rating, on CreditWatch with negative implications.

One analyst explained to the Journal Thursday from New York that if Kerzner were to sell additional debt, it could face higher interest rates.

Several weeks ago, Kerzner announced that it was selling off some of its debt to raise millions of dollars to help fund its Atlantis expansion.

Peggy Hwan, another S & P analyst quoted in the release said, “The rating action follows the company’s announcement that it has further increased spending associated with its Phase III expansion project for Atlantis on Paradise Island, Bahamas.

“Given the greater spending, in addition to the company’s previously announced growth initiatives, debt leverage is now likely to increase beyond Standard & Poor’s expectations.”

In resolving the CreditWatch listing, Standard & Poor’s will meet with management to further discuss its spending plans, operating performance, and long-term growth and financing strategies.

Standard & Poor’s said it has determined that if a downgrade were to occur, it would be limited to one notch, to a BB-.

When the company first came to The Bahamas a decade ago, it faced difficulties in raising the $80 million to fund its initial phase of Atlantis, according to CEO Butch Kerzner, who spoke at the 10th anniversary celebrations Wednesday night.

But a lot has changed since then, Mr. Kerzner indicated.

“I was having a discussion with our bankers…and it was amazing to me the transition from when we started 10 years ago when we were really scratching around for the $80 million to build the first phase,” he said.  “It ended up being $140 million…today, literally on telephone calls we can raise $500 million for this next phase through our banks and we’re talking about the biggest banks in the world.

He added, “We don’t even address the question about The Bahamas or Bahamian risks.  Those issues are gone and that’s a big deal.”

The Central Bank of The Bahamas has placed lending restrictions on Commercial Banks to protect the country's foreign reserves from being depleted

Bahamas Commercial Banks Losing Money

By Candia Dames

Nassau, The Bahamas

candiadames@hotmail.com

24/03/2004

 

 

Lending restrictions imposed two and a half years ago by the Central Bank are suppressing government revenue and hurting profits of commercial banks, according to a Cabinet Minister and a group of bankers.

 

But the Central Bank appears unlikely to raise those limits anytime soon.

 

State Minister for Finance James Smith recently blamed disappointing government revenue collections on the restrictions.

 

He told the Bahama Journal that, "If there is no credit growth, then clearly there is no appreciable growth in imports and consequently we have less in terms of customs duties."

 

In September 2001, the Central Bank placed the lending restrictions on banks to protect the foreign reserves from being depleted.  For the entire system as a whole, the restrictions limit the total lending to $3.7 billion.

 

Essentially, banks are restricted from lending more than what they are collecting in loan payments.

 

Central Bank Governor Julian Francis is set to meet with his Monetary Policy Committee Wednesday and wished not to comment on the continued effects of the limits.  The Committee, which meets once a month, is expected to review the present policy.

 

Governor Francis told the Bahama Journal in an earlier interview that, "If the banks became overly aggressive and were imprudent in their lending activity, then the Central Bank limit would come into play.

 

"And those limits are in place to protect the external reserves during a time of relatively slow economic activity when our economy is not generating the level of foreign currency which it would normally generate if the economic activity were stronger."

 

Mr. Francis also explained that if there is more to borrow, it costs less to borrow so more people tend to get loans, which is why the Central Bank restrictions are so important.

 

He has said that the Bank continues to review this policy and would only make adjustments if they were in the best interest of the overall economy.

 

The Governor reportedly told a meeting of commercial bankers two weeks ago that he is not now prepared to raise or eliminate the ceiling.

 

The restrictions continue to create a high level of liquidity in the system and commercial bankers continue to press the Governor to relax his position.

 

According to John Rolle, deputy manager of research at the Central Bank, the surplus stands at around $200 million.

 

One banker told the Journal Tuesday that, "Everybody (commercial banks) has a whole lot of money."

 

He said, "What it's going to do is drive deposit rates down.  If you're selling shoes and you have a store full of shoes and the Central Bank or some other body stops you from selling the shoes, the question is, are you going to order anymore shoes?  The answer is no.  Why should the banks continue to take deposits if they have no avenue to lend the money out?  The government has already said it is hurting them and it is hurting the consumer."

 

Foreign reserves, meanwhile, remain at a healthy $550 million.

 

But Mr. Rolle said while the reverses have been increasing in recent months, "the growth in reserves that we've seen is a bit deceptive."

 

"Some of that growth continues to occur because we are very restrictive on the credit side," he said.  "At the same time, the growth is reflecting the fact that there is a gradual firming in the momentum of tourism and we certainly hope that it will accelerate now that we enter the most important part of the tourist season."

 

Mr. Rolle said to remove the restrictions would be to presuppose that there are strong inflows coming into the economy that would support increased demand for imports.

 

"Increased demand for imports is going to be one of the results of removing the ceiling," he explained.

 

Mr. Rolle added, "When we talk about seeing improvements in the economy, we also know that when the improvements start to occur, it will also be evident in the government's position.  The majority of the imports in this country are not financed by credit.  They are financed by the general level of economic activity.  So as the general level of economic activity picks up so will imports and the government will see a return from that avenue."

The Lending Practices of Banks in The Bahamas Investigated

Bankers Attack Politicians

Local Bahamian Bankers Attack Politicians

Candia Dames

candiadames@hotmail.com

Nassau, Bahamas

26/02/2004

Local bankers are questioning the motives of some members of parliament who wish to delve into the lending practices of banks in the Bahamas.

 

One leading banker said that it is clear that some parliamentarians have had their share of personal problems with financial institutions and may not be objective in their investigations.

 

But some parliamentarians insist that banks have been "getting away with murder" as it relates to consumer rights and there needs to be better legislation to provide more consumer protection.

 

These MP's believe that the contracts that govern banking business are skewed in favour of the banks to the disadvantage of the consumer.

 

Malcolm Adderley, the Member of Parliament for Elizabeth who chairs a newly-formed parliamentary committee to look into lending practices of banks, believes that contracts that govern home mortgages should allow for mortgage holders to have more rights when they have built up significant equity.

 

He said that it cannot be right for persons who may have missed a few mortgage payments to lose the entire property to the banks and be cheated on the equity value of the property.

 

But the bankers are said to be concerned that the image some MP's have of lending institutions is tainted.

 

Mr. Adderley, who brought the private member's bill to the House of Assembly to establish the committee, told the Journal Wednesday that while he could not speak to the credit worthiness of all committee members, he was confident that an objective group had been assembled.

 

The other four committee members are Pleasant Bridgewater, MP for Marco City; Ken Russell, MP for High Rock; Robert Sweeting, MP for South Abaco; and Sidney Stubbs, MP for Holy Cross.

 

There was concern within parliament Wednesday that one member, Mr. Stubbs, along with Mount Moriah MP Keod Smith set the wrong tone for the work of the committee when they sought to link respectable bankers to criminal activity a week earlier.

 

"We want to redress a heinous crime that has been perpetrated for many years by those who were almost unconscionable, those who made millions and millions of dollars from one piece of property," Mr. Stubbs said. "The time has come to stop it."

 

Mr. Smith, meanwhile, said the banks are close to being legitimized criminal institutions.

 

The bankers will meet with Central Bank Governor Julian Francis to discuss parliament's intention to establish the committee and the issues surrounding its members' work, the Journal has learnt.

 

The bankers have also pinpointed other members of parliament who are not a part of the committee who have been in default of loans, or turned down for credit.

 

Mr. Adderley, the committee chairman, said he believes that those members who will be looking at the lending practices have the highest level of integrity.

 

"I don't feel that members of the committee would allow their personal experiences with any financial institution to interfere with their public and professional duty to conduct a proper investigation of the issues at hand", he said.  "In fact, I don't think it would be fair for one to prejudice any members of the committee unless the banks can show a personal bias on behalf of the committee."

 

Mr. Adderley added, "Some of us have to take the brunt.  Most of us in leadership positions sometimes tend to talk about these things but have no intention of taking a serious step in the right direction."

 

He said that going up against powerful financial institutions will not be easy.

 

But he added, "I would have thought that corporate citizens and government corporations who sincerely have the interest of the people at heart would have no reason to fear in respect to investigations into matters that have been of great concern to people for as long as anyone can remember.

 

"I personally don't feel that leaders of the people have any choice in matters that fundamentally affect their lives despite the perception that they might be going up against tremendous odds in the form of institutions that have tremendous economic power and influence."

 

Mr. Adderley added that the committee will not seek to go witch hunting.

 

"It merely seeks to discover information that hitherto is merely speculative in order to make objective and frank recommendations to parliament," he said.

 

The committee, which planned to hold its first meeting today, has been established "to examine, investigate and assess the policy of banking institutions with respect to mortgage lending and practices with a view to offering legislative protection for consumers."