CBDCs are a declaration of war against the banking system claims economist


Central bank digital currencies (CBDCs) are a declaration of war against the banking system, Richard Werner — development economist and professor at De Montfort University — told Cointelegraph at Web Summit on Nov. 4.

Known for his quantitative easing theory, published almost 30 years ago, Werner is an advocate for a decentralized economy. In an exclusive interview with Cointelegraph’s editor-in-chief, Kristina Lucrezia Cornèr, he discussed the challenges that surround decentralization, the role of central banks and how blockchain can help promote transparency in economies.

This interview was part of Cointelegraph’s extensive coverage at Web Summit in Lisbon — one of the world’s leading tech conferences.

Cointelegraph: Do you think that a decentralized financial system is actually possible?

Richard Werner: Yes, because, of course, what we have is lots of forces for centralization by the central players. They love that and they want more centralization, but that’s very dangerous and very bad. The extreme case is the Soviet Union. Through key periods, that was a very centralized monetary system with only one central bank, and that wasn’t a good system. But that’s what the central planners in other countries like the ECB [European Central Bank], that’s what they want.

The ECB says there are too many banks in Europe. Why is that? And who are they to say that? Well, they’d love it to be only them. They don’t want competition. They want to be back to the central bank, the only central bank. So, that’s where the issuance of CBDCs comes in because through CBDCs, the central planners are thinking it’s a declaration of war against the banking system. CBDC is really literally the central bank saying we’re going to open current accounts and ordinary banking for the ordinary public at the central bank. In other words, the bank regulator is suddenly saying we’re going to compete against the banks now because the banks have no chance. You can’t compete against the regulator.

CT: And is decentralization possible in this scenario?

RW: Yes, it is, but only if we create many local community banks, proper full-blown banks with a banking license, because a banking license is a license to print money, literally. When a bank gives a loan, do you know where that money comes from for the loan? It doesn’t come from deposits. That’s just the breakers of what the bank owes you the money for. The new loan is newly created by the bank and added to the money supply, and that’s allowed when you have a banking license.

A banking license is a license to print money, and if we have many community banks, that is a decentralized system. They lend only locally to the local area, local small firms. That’s productive lending, that’s sustainable and non-inflationary. Then you get growth and prosperity, employment, job creation, stability, no inflation. But when you get a centralized system and bigger banks, they buy up the small banks or you only have one central bank.

They also want to do only big deals. The bigger banks get, the bigger the deals they want to do, but big deals are usually asset lending, where the bank creates money. People buy assets, which creates asset inflation and the asset bubble. That’s why we have them. And then you get a banking crisis because it’s always, you know, dependent on money creation continuing.

CT: What is the role of blockchain here?

RW: It does usually mean the potential for decentralization by definition because it is a distributed ledger. Why? Where does this expression come from on distributed ledger? The ledger is the account double entry, accounting, asset liability and the balance sheet of a company and a bank.

The standard system is a centralized ledger held by the central bank and then the banks. Because the more banks you have, the more decentralization you already have, but a totally decentralized ledger is where everyone can check using the technology for transactions. You have this post and check and, therefore, accountability. That’s why it’s an interesting tool. It gives this transparency and local accountability if it’s used in the right way. I think, once again, it’s an ideal combination of blockchains and combining it with local banking because then you maximize service.

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