July 21, 2024: There is a silent world war unfolding right now. Countries, governments, and their armies are not the warring factions in this war. This war is not about Gaza, Ukraine, Trump, Iran, or US-China relations.
It’s a war that’s being fought with banks, not tanks. It’s about CBDCs, or Central Bank Digital Currencies. It is a war that concerns your money and your country’s economy. It’s a strategic war that’s being fought between two lobbies of one of the most influential industries on the planet – the banking industry. In this in-depth article, we’ll talk about the hidden truth of CBDCs.
For the past couple of decades, two rival factions of the global banking industry have been fighting a bitter strategic war. Who are these two factions? One lobby controls the major central banks around the world. And the rival group controls the top commercial banks globally.
It’s all about CBDCs
Why are they fighting? And what are they fighting for? Here’s what’s at stake – central banks themselves now want to get into the business of creating electronic money or digital money for the public. To be able to do that, they’re launching a centralised digital currency, called CBDC. Through that, central banks want to establish a direct relationship with the public. But they have an enemy on their way – the commercial banks. And that’s why there is a war.
Let’s understand the two rival parties in this war. One group includes the largest central banks in the world. It’s the group that wants to launch CBDCs – such as the US Federal Reserve, People’s Bank of China, Bank of England, Bank of Japan, Banque de France, Deutsche Bundesbank or the German central bank, Central Bank of the Russian Federation, Swiss National Bank, and a few others. Here, we have the RBI, or the Reserve Bank of India.
The rival group includes the top commercial banks. The world’s 46 most powerful commercial banks are in the US, China, Germany, and Japan. The American banks in this lobby include JPMorgan Chase, Bank of America, and Wells Fargo. Chinese banks include ICBC Limited, Agricultural Bank of China, and Bank of China. HSBC and Barclays are two British banking giants in this war.
Then there is Royal Bank of Canada, India’s HDFC, Japan’s Mitsubishi Group, BNP Paribas of France, Deutsche Bank of Germany, Qatar National Bank, Switzerland’s Credit Suisse, and many others. It is an international line-up led by US and Chinese commercial banks.
Here in India, some major private commercial banks, apart from HDFC, are ICICI, Kotak Mahindra, and Axis. The top state-run commercial banks here are SBI, PNB, Indian Overseas Bank, and Bank of Baroda.
Dynamics of the war
Now, let’s understand the dynamics of the war in simple words. In any country’s economy, less than 10% of the money supply is created by the central bank and the government. It is created in the form of cash, that is, paper currency and coins.
More than 90% of the money supply in any country’s economy is created by commercial banks. Commercial banks are of two types – private banks and state-run banks. So, this 90% of the money created by commercial banks exists in electronic or digital form. It is basically the money that we collectively have in our bank accounts – such as deposits, profits, and salaries.
(We have also done a detailed report on how commercial banks create new money out of thin air. Click here to read that article.)
So, the central bank creates only a small percentage of the money supply. But its main job is to regulate a country’s monetary policy. Central banks, like the RBI, don’t deal with the public directly. If they want to increase the money supply in society, they direct the two types of commercial banks to create new money. The commercial banks create the new money on the central bank’s advice, and release it into the economy through various types of loans.
When it comes to creating vast sums of new money and dealing with the public, commercial banks run the show. The RBI and all other central banks have a lot of power, but only to monitor and regulate the banking industry. They can’t directly transact with the public. Crucially, they can’t create new money beyond physical cash.
But in recent times, central banks – actually the network of people who control central banks around the world – have decided they also will start creating digital money directly.
They want a bigger role in the money-creation process in society. They want to compete with commercial banks, and they’re in a pole position to snatch away the market dominated by commercial banks around the world.
Central banks have come together to call this new kind of money – Central Bank Digital Currency. Basically, the plan is this: central banks will get into the game of directly pumping electronic money into their respective country’s economy. So, they will create CBDCs in their respective countries and transfer the new money directly to the public.
Financial earthquake
The result will be a financial earthquake. Till now, the average citizen has been dealing only with high-street banks. The CBDC system will see the public deal directly with the central bank. The public will be able to open personal accounts with the central bank. They will also have the liberty to convert their existing money in commercial banks into CBDCs, and transfer that to their central bank account.
If this system comes into place, there will be a tendency among people to prefer having personal accounts with the central bank, and therefore, deal only in CBDCs. That’s because the public usually sees the central bank as a safe and responsible monitoring institution compared to commercial banks, which can technically fail or wind up.
The development will strike people that commercial banks have a history of shutdowns and bank runs, but central banks, like the RBI, are always very stable. Therefore, ‘CBDC is the safest form of money’ – that could soon become the public perception.
This is the root of the world war raging on all continents as you are reading this report. Plutocratic ruling elites who control the biggest commercial banks are alarmed. For so many years, commercial banks have been controlling more than 90% of the money supply. Even though they follow rules laid down by central banks, they have had a firm monopoly on the money supply and on bank accounts of the public. This traditional system is now facing a tsunami called CBDC. If CBDCs become the norm, commercial banks would lose a large majority of their customer base.
Control of money supply
Bottom line is, control over the money supply will change hands. Central banks will fiercely compete with commercial banks while also playing the role of regulating the same commercial banks!
It’s like this: the referee in a football game suddenly decides to play and score goals himself! If somebody tries to protest or stop him, the referee shows them the red card and continues playing. This coming disbalance has left commercial banks in a state of insecurity and panic.
Let’s quickly look at how CBDCs work, the weapon in this banking war. CBDC is purely a digital currency accessed by users on internet-enabled phones and desktops. Just like people now have bank accounts, in the CBDC system, they will have CBDC wallets.
There are two types of Central Bank Digital Currencies: wholesale CBDCs and retail CBDCs. Wholesale CBDCs will be used when central banks will transact with commercial banks. It’s not meant for public use. The public, instead, will use retail CBDCs. Retail CBDC is the money that the public will have in their central bank accounts and CBDC wallets.
Commercial banks don’t have any issues with wholesale CBDCs. That’s because wholesale CBDCs won’t disrupt the commercial banks’ relationship with the public. What the commercial banks are afraid of is retail CBDC. That’s the main bone of contention in this conflict between commercial banks and central banks. That’s because retail CBDCs will straightaway kick out traditional money kept in commercial bank accounts.
CBDC as a weapon
Basically, retail CBDCs will kill the existing money system. The public’s money will remain intact, but the form will change. Their existing money will be converted to CBDCs and their personal bank accounts will switch from neighbourhood banks to central banks.
Due to retail CBDCs, business will be on fire for commercial banks, many of whom will no longer get any priority from the public. In a way, central banks would use CBDCs as a financial weapon to capture the market share of commercial banks.
So, what is happening on the ground with CBDCs? More than 110 countries are in various stages of rolling it out. China is leading the race. It has already tried out the digital renminbi. The European Union is working on a digital euro. In America and Britain, CBDCs are waiting in the wings.
Five central banks have already launched CBDCs for public use, but only on a limited scale. There’s the Sand Dollar in the Bahamas, DCash run by the Eastern Caribbean Central Bank, Nigeria’s e-Naira, Jamaica’s JamDex, and Russia’s digital ruble. Brazil has run trials of its Drex currency.
Here in India, too, things are moving fast. The CBDC of the RBI is called digital rupee or e-rupee. Last December, many Indian commercial banks transferred employee benefits to government workers in CBDCs.
In 2023, the RBI recorded an average of 10 lakh CBDC transactions per day. The RBI had started its e-rupee pilot project in December 2022, and it’s quickly picked up pace since then.
Universal Basic Income
The central banking lobby may also try to give the public incentives to move away from commercial banks. One incentive could be UBI, or Universal Basic Income. UBI is a concept that says everyone in society should get a minimum monthly salary from the government or the central bank. It won’t come with any conditions. People won’t need to work or do something to earn Universal Basic Income. They will simply keep getting it.
A few countries have tried out UBI on a limited scale, such as Libya, Kenya, Brazil, Japan, Israel, and Switzerland. In India, a UBI pilot project was tested in Madhya Pradesh in 2020. The World Bank and the IMF often talk about UBI, which means it is a serious possibility someday.
Now, for example, if a central bank tells the public they will become eligible for UBI if they use CBDCs, obviously they’ll be tempted to go for it.
German economist Richard Werner has an interesting take on the future of CBDCs. He says it’s possible that CBDC wallets won’t necessarily be accessed only from mobile phones. They might come in the form of microchips implanted inside the human body.
Werner says a CBDC wallet of the future could be a chip that would look like a grain of rice. It would be surgically placed under the skin between the fingers of the hand. People can make payments in CBDCs just by waving their chip-implanted hand near a wireless payment machine. They won’t have to touch anything.
There’s no confirmation of this future technology, but you can’t ignore the warning from Werner. Richard Werner, after all, is a widely followed economist who introduced the concept of ‘quantitative easing’, a popular monetary policy concept.
Central banks have been around for a long time, since at least the 17th century, while commercial banks are not new to society either. They go back a long way – by a few thousand years. Time will tell us whether central banks will shoot down commercial banks in future using CBDC as a financial weapon. Time will tell us whether the unsuspecting public will get caught in the crossfire.
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