We are seeing the privatization of money. Actually, this is something that has been occurring for decades. Unfortunately, most are unaware of what actually unfolded.
This includes some of the most powerful people in the world, at least in their own minds. Central bankers have a great deal of hubris, believing their own press clippings. One of those people is Christine Lagarde, president of the ECB.
She is warning that stablecoin adoption could lead to the privatization of money. Again, this is something that took place decades ago. Actually, if we harken back to the beginning, money was always designed and utilized by the private sector.
In this article we will dig into how technology is, once again, bringing about the era of privatized money.
The Era of Privatized Money
The belief in Central Bank money is perplexing. It is more than a half century since this was the case. Nevertheless, people like Lagarde still act like this is the system we operate under.
Throughout the world, we see monetary policy fail at every turn. Central banks have no power. The idea they are magically pulling the levers of the economy is absurd. The power they, perhaps, once wielded is dead.
Here is what Lagarde had to say:
Lagarde stated that the rise of stablecoin adoption has introduced other risks, as it weakens sovereignty and reduces the ability to conduct monetary policy. She emphasized that, as they currently stand, stablecoins should not be treated as money.
As I just stated, monetary policy is a joke. The central banks have no control over the economy. In fact, they do not even have much impact on the money supply.
Central bank money, under fractional reserve banking, is limited to banknotes. This means physical cash. For most of the world, cash amounts to a miniscule fraction of the total transactions. The overwhelming majority are done digitally.
Here is where the latest privatization of money took place. Commercial banks, i.e. private institutions, control the money supply. They expand it via bank lending. This is Banking 101. The Central Bank do not force banks to lend. Hence, monetary policy is nothing more than a wish.
Since the end of World War 2, we saw another form of money form: the offshore dollar system. Here we see the investment banks running the show. These are not government institutions although governments likes to think they have control over what is occurring. They do not.
People often call this Eurodollar money. Basically, it is what funds global trade. The system was set up after WW2 when the banks realized there was a need for money that was going unmet. The Bretton Woods accord was a failure from the start.
Therefore, we had money operating in the hands of private, albeit regulated, institutions for more than 70 years. Most of the transactions took place outside the reach of any governments or central banks.
The Rise of Crypto
Cryptocurrency is taking this to another level.
For the sake of our discussion, we will focus upon stablecoins because they fulfill the requirements to be a medium of exchange. Outside of that, the rest of crypto provides access, value capture, and network security.
Going back to Lagarde, here is what she had to say:
Lagarde also referred to the fact that stablecoins are issued by private companies, like Circle and Tether, and that this clashed with her conception of money as a “public good.” “My fear is that that blurring of the lines I mentioned earlier is likely to lead to a privatization of money. I don’t think that this is the purpose for which we’ve been appointed to do the job that we have, nor is it good for this public good that is money,” she asserted.
Once again, we are dealing with an individual detached from reality due to her hubris. She believes that people like her are serving the public good. History seems to tell another story.
Crypto simply makes this obvious: central banks are done. There really is little need for them. They are part of a bygone era where physical cash, which they did control, was the basis for monetary payments. In a digital world, they are about as useful as stones.
We are seeing a system where anyone can create money. Of course, money creation and utilization are two separate things. Simply because someone puts out a bunch of coins doesn't mean they will have any value.
Here is where Lagarde gets it wrong. A currency does not have value because of the Central Bank. Instead, it is the economic activity tied to it that "backs" the currency.
With crypto, people are free to choose what they want to utilize. Over time, we saw the adoption rates of USDC and USDT increase. This will likely accelerate as more stablecoins hit the market over the next couple years.
Governments are scrambling to establish regulation. My view is this will form a hybrid system for a certain period of time. The "regulated" coins will be those used by centralized entities. However, we will also likely see the rise of "dark" stablecoins, those which operate outside the reach of the government system.
All of this means the era of Central Banks is quickly approaching. More people will realize the impotency of these entities as the shift toward privatized money occurs to an even greater degree.