First, she committed the crime of financial negligence while French finance minister. Then she immolated the Greek economy while head of the IMF, according to the IMF’s own watchdog. Then she engineered the greatest inflationary debacle in Germans’ living memory while head of the European Central Bank. And now she plans to launch a central bank digital currency (CBDC). With Christine Lagarde in charge, what could possibly go wrong?
The answer, surprisingly enough, is a prank interview with a fake Volodymyr Zelensky…
You can watch the amusing video here. It’s been getting a lot of attention lately because of the comments Lagarde makes about CBDCs specifically.
Now I can remember when CBDCs were nothing but a conspiracy theory. And then, once central banks around the world announced they were developing them, the conspiracy theory became how they could be used. Whether governments would use them to actively control our lives, or whether they would let us use them without interference.
Sure enough, as Lagarde told fake Zelensky in her prank interview, ‘there will be control, you are right, you are completely right’.
The question is how much control and in what ways. Which is, of course, a mere sideshow.
The point is that, using CBDCs, governments are able to impose a new type of control over our lives. And if you think they won’t go on to use that control in the future, based on reassurances of how CBDCs will look when initially launched, then you must’ve been living under a rock since 2007, at least.
But let’s start at the beginning…
About halfway through the interview, fake Zelensky asks Lagarde about CBDCs:
‘There are many protests in Europe against the electronic euro. What is the reason?’
Lagarde dodges the question by pointing out that some people are also in favour of it. Specifically young German men, for some reason. Fortunately, fake Zelensky prompts her on the correct answer:
‘The problem is they don’t want to be controlled. They don’t want to.’
The criminally financially negligent Lagarde’s reply to this is where things get interesting:
‘Yeah, but you know what? Now we have in Europe this threshold above 1000 euros you cannot pay in cash. If you do, you are on the grey market. You take your risk. You get caught, you are fined, or you go in jail.
‘But, you know, the digital euro is going to have a limited amount of control. There will be control, you are right, you are completely right.
‘We are considering whether for very small amounts, anything that is around 300, 400 euros, we could have a mechanism where there is zero control.
‘But that could be dangerous. The terrorist attacks on France back 10 years ago were entirely financed by those very small anonymous credit cards that you can recharge in total anonymity.’
Let’s consider what all of this means…
First of all, Lagarde’s response demonstrates the power of cash. Given the size and prosperity of the European cash economy, it’s clear that cash continues to offer the best immediate way of avoiding government controls on what you can do with your money. Whatever the laws may say, the government’s ability to control you using regulations on cash are not effective.
But this is not so under a CBDC.
The ability to enforce the law is what separates cash from CBDCs.
If the EU Government lowered the cash transaction limit to 50 euros, people would simply ignore it. But if your government lowered the CBDC transaction limit to $50, you would not be able to use it for larger transactions. It simply wouldn’t work.
This means that arguing about what laws are on the books is missing the point. It’s the enforcement that matters when it comes to CBDCs. Because laws can change. And they do, especially during a crisis.
You see, historically speaking, government policies don’t exactly work. People use cash payments to remain in the black market to avoid tax. Australians routinely fail to wear bicycle helmets. It’s illegal, and yet, it happens because enforcement is patchy.
What makes CBDCs different is entirely unique, and it has never happened before. We’ve come close, but nothing quite like this.
For example, most people’s income tax is not received by the taxpayer and then paid to the government. Instead, it’s automatically deducted by the employer.
That’s a much higher level of enforcement than asking people to pay their own tax. Because they never get control of the money. It simply disappears before they get it.
CBDCs offer the next level up.
What CBDCs do is give the government direct control over your money. It’s like being able to push a button and bicycles don’t roll unless the rider is wearing a helmet.
Under CBDCs, the government policy and its successful implementation are one and the same thing. What governments decide about money actually happens. Dare I say it, government policy would actually work!
Of course, governments promise not to actually do many of the policies, I’m worried they will. But the Titanic wasn’t sinking when it was boarded by passengers and the income tax didn’t apply to much of the population, let alone at a high rate, when it was created.
Crises that justify new policies and creeping authoritarianism are the issue when it comes to CBDCs. And if you really think that a currency that can be controlled by government won’t be controlled by government then you’re reading the wrong newsletter.
Our good old Reserve Bank of Australia is, of course, conducting a CBDC pilot study to examine the ‘use cases’ of having a CBDC. This after news.com.au reports ‘Reserve Bank of Australia officials have finally admitted they “did a terrible job”’ on monetary policy by assuring borrowers they wouldn’t raise interest rates until wages had begun growing fast.
Did you learn your lesson, or do you trust the RBA when it says CBDCs won’t be used to control you?
Find out how to respond to this threat, here.
Until next time,
Editor, The Daily Reckoning Australia Weekend