ON CENTRAL BANK DIGITAL CURRENCIES

& WHAT I’M DOING ABOUT THEM

I recently published a book called ART & MONEY — a book that touches on many aspects of money, its design and reason for existing. Yet, I only mention CBDCs once. CBDCs are the hot new topic in money, being an amalgam of private cryptocurrency and central bank issued fiat. And I’ve been on the cutting edge of both, having worked in the banknote industry, and brought banknote design techniques to the crypto space. So why haven’t I been part of the conversation about CBDCs?

The reason comes from my research that led to Art & Money. I’ve come to understand why fiat and cryptocurrency exist, and where CBDCs fit in the terrain of money and human history. My research has concluded that CBDCs face headwinds that will either make them difficult to enforce nationally, or will force them to make concessions to previous forms of money. These headwinds come from 1) the unique evolutionary momentum experienced by humanity at this time, 2) CBDC’s emphasis on solving central bank problems at the expense of catering to humanity, and 3) the present availability of private forms of money.

These three factors mix into a cocktail that makes CBDCs an artificial form of money, that are insensitive to the direction of evolution, creating a bias for enforcement on the public (as opposed to being naturally accepted by the public). Like the Berlin Wall, which was an artificial border, the imposition of a cashless system is evidence of its artificiality, not its strength. Unlike the times of the Berlin Wall, we live in an aspirational age, where people are far more freedom conscious. The internet ‘let the genie out of the bottle’, so to speak, and the internet economy unleashed internet money, i.e. cryptocurrency. The free market has delivered what it always does: freedom of choice. With so many choices of forms of money, the CBDC must offer something materially new, that swims in the direction of an aspirational, freedom-conscious public — and this may be too much to ask from governments and central banks who are already struggling to maintain the public’s trust.

What follows are my thoughts on the artificiality of CBDCs, what the efforts of CBDC advocates ultimately mean (with a warning), and the missing piece of our financial landscape that CBDCs could fulfill. I’ll finish by mentioning my personal role in the CBDC conversation.

Artificial States vs Authentic Experience

All artificial constructs eventually dissolve into their authentic parts. You can create an artificial state for a time — with declarations, invented legal frameworks, invented currencies, and invented language. But ultimately, an invented state will collapse into the original cultures and tribes that always existed in that locale.

I see this attempt to create an artificial state in Europe. The same old practices are used to force Europe’s unity — a united currency, and the influx of people to mix cultures into a homogenous soup. It will, as it has always, fail. Europe is still essentially the same mix of distinct cultures that existed before the creation of the Euro and the European Union, with their old rivalries and differences intact.

There are other places in the world that will face a similar dissolution because their creation was never sympathetic to the cultures they hoped to unite under one flag and currency. I mention this briefly in the book; we can expect to see all states dissolve into their original tribes, as layers of artificiality fall away. The so-called United States, the so-called United Kingdom, the so-called Russian Federation — it is not just Europe that will dissipate into tribes; humanity is essentially a mix of tribes that have formed nations for the purpose of industry and conquest. But when the introspective search for authenticity is combined with high technology, the nation ultimately recedes in importance.

This is the movement of our time — the search for an authentic experience makes all attempts to sustainably brute force artificial states more and more difficult. This is the wind that is blowing against the CBDC, and it’s what will split many CBDCs into pieces, filtering back to either private cryptocurrency, private commodity money, or private fiat money. Many CBDCs will be piloted, floated as ideas. Many will be enforced. But ultimately, they will be overtaken by more essential forms of money that are flowing in the direction of ease-of-use, privacy, and interoperability.

Selling The Emperor His Clothes

The conversation around CBDCs amongst those who advocate for them tends to be aimed at central banks. There is very little investigation into the public’s mood, aspirations, struggles, and appetite. And what little feedback is gained from the public is usually acquired in a way that would skew the results to be positive towards a CBDC. This is very easy to do — questions can be asked in a certain way, focus groups can be hand-picked, and schemes can be piloted in small, closed economies that give an inaccurate picture of how the same system would scale into a national economy.

Unless you’re very sensitive, and you’re able to read between the lines of people’s words, and you can decipher the true intention behind the public’s actions, human free will alludes you, and any attempt to anticipate how humans will ultimately react to the introduction of a nationwide CBDC will be futile.

This futility is expressed in the conversation around CBDCs. The public’s attitude towards Central Bank Digital Currencies is so absent from the CBDC narrative, that it reveals what is actually going on — selling infrastructure to a central bank or government. I’m not judging — we all need to eat! But it’s not a recipe for a lasting new currency — it’s the recipe for something artificial that will easily evaporate, because it isn’t built to honor the shifting needs of the public.

Sure, a CBDC solves the problems of governments and central banks. But the public’s problems are too complex and too deep to even comprehend with a little focus group or questionnaire. The amazing thing about human free will is that it evades measurement. Looking at the experiment changes the experiment, and so the direction of human history can only be managed temporarily. This truth, which is unquantifiable, escapes the comprehension of very simplistic sales pitches to central banks.

A Warning — Beware The Splitting Of Worlds

Expressing my thoughts on CBDCs would be incomplete without a warning to those who wish to enforce them. I’ve mentioned that Humanity is a collection of irreconcilable tribes. More specifically, some will gladly accept CBDCs, and some will gladly reject them. This is because of a phenomenon I call ‘the splitting of worlds’ — two tribes of Humanity, going their own way. One tribe derives their locus of authority externally. They crave rules and the external saviors of government, the medical system and media, and are alarmed by the idea of individual freedom. The other tribe derives its locus of authority internally. They prize freedom, individuality, and do not trust external sources of information without it passing through an internal mechanism. We call the mechanism ‘intuition’, ‘feeling’, ‘discernment’.

You can think of these two tribes as two separate humanities, experiencing two unique timelines, two unique ecosystems, two unique experiences. This is the split that is progressing in our world, to make two worlds. The warning: if you wish to capitalize on the tribe that craves external authority, in the form of government directives and a programmed, centrally managed financial system, that is fine. You will find your tribe. But you will not be able to breach the other tribe. And if an idea only works on half the population, it isn’t much of an idea.

If a certain percentage of a population rejects an idea, then it cannot be enforced indefinitely. At best, the enforcement will be temporary. What is the percentage? That number rests in the heart of humanity and cannot be known. This is the number that alludes all the white papers, all the research, and conversation. I will only say this: the percentage of rebels can be much, much lower than 50% to guarantee failure to enforce a CBDC. Rebellion takes many forms — the most powerful rebellion is silent and easily mistaken for incompetence. How enforceable is an infrastructure that has holes of incompetence running through it?

The miscalculation that enforcers will make is that they do not want to admit, or simply do not know, that this tribe of rebels will be high enough to prevent the indefinite enforcement of cashless, programmable money. This tribe will, at best, begrudgingly accept occasional interactions with cashless programmable money, while carrying out their lives on another form of money; an informal cash system, barter, or a private blockchain.

An Apology To Gold and Cryptocurrency

This is why a CBDC will ultimately ‘apologize’ to other ‘natural’ forms of money. To understand exactly what this apology consists of, it’s helpful to understand why various forms of money exist, then you’ll be able to see the real opportunity…

Precious metals exist because of the need for an Earth-bound standard of account. The homogenous and precious qualities of gold and silver lend themselves best for this purpose. They have a material scarcity and a scarcity of properties that make them apt in storing and exchanging physical wealth.

Cash exists because an evolution in the world created the need for increased speed of travel, building and communication. Cash — fractional reserve banking — made the modern world possible. Today, cash remains the stand-in for private precious metals, even if it isn’t backed by them.

Cryptocurrency exists because of a further evolution in electronic money and the internet expressed a growing desire for 1) egalitarianism and 2) space exploration. Cryptocurrency is the first form of money that is interoperable between Earth and space, and exists on the internet — which is impossible to censor in its decentralized form. The Blockchain is an evolution of privacy — a kind of ‘open privacy’, in which the system is open source, but the users’ identities are protected.

So where do CBDCs fit? They’re neither private, nor open source, nor interoperable, nor decentralized, nor do they have the permanence of precious metals. Thus, the CBDC will eventually find itself morphing into something else — something useful that fits into the evolution of money. What could fit?

The missing piece of our present monetary puzzle is the tokenization of 100% redeemable precious metal, on an open source blockchain: a global gold standard that frees heavy metal from gravity, allowing anyone to take their wealth with them, privately, on a publicly audited ledger. I promise you: for those that survive, this is where all CBDCs will eventually converge, because it actually solves a public problem: the risk in transporting the oldest form of physical money is eliminated; the increasingly nomadic human — zapped by space weapons, narrowly escaping natural disasters, unable to afford a permanent shelter, or displaced by war — has a need to take easily storable wealth with them. No more burying hordes of coins in vases. Finally, the central bank is saved — the debt cannot be paid back, even if governments shake down their population with taxes, so the debt will be cancelled, and replaced with a deflationary reversion to precious metal backed money. Everybody — truly — wins.

Don’t Give Up!

I know people personally who are working on CBDCs and exploring them. I thank them because without venturing into the unknown, nothing is achieved. They are paving the way, on the road to a sustainable CBDC concept, even if it isn’t what was first imagined.

There’s nothing wrong with a central bank-issued commodity-backed token, if it takes the best of both worlds: Heaven (crypto) and Earth (metals). It must be publicly audited, and 100% backed and redeemable for it to satisfy both heaven and Earth.

Though the CBDC conversation today is dominated by trouble-shooting central bank problems, through trial and error, the idea of a centrally issued yet private token will eventually seep into the world’s financial consciousness. I thank everyone who is working on CBDCs for their early contribution to the eventual resting state of the central bank digital currency.

So what am I personally doing about central bank digital currencies? I have the rare qualification of bringing banknote design (which is at the core of the brand of a central bank) into the ecosystems of cryptocurrency and digital assets. I’ve had a lot to think about and a lot of design problems to solve in the bridge between fiat and crypto. So much so, that I wrote a book on the subject, forming my own designers’ methodology.

I’m also making serious moves into the gold banknote space. I mention a bit about designing for gold and precious metals in the book, but now I’m generating new artworks and products that act as case studies in numismatic design and gold. Through these efforts, I hope to offer numismatic design to new forms of money, to make them as attractive and familiar as possible, contributing in a small way to financial history.

Find my book on Amazon: mybook.to/artandmoney

Signed copies have sold out, but back-orders can be made here: tombadley.net