Discover more from karlof1’s Geopolitical Gymnasium
Digital Currencies to Facilitate New International Commerce System
There’s a multitude of scare stories circulating related to digital currencies probably emanating from MI-6, CIA, and other places involved in the effort to defend Dollar Hegemony. Yes, digital currencies are already in place in many nations but they’re not called that specifically and they function just fine. The use of a debit or credit card nowadays in the vast majority of nations is done digitally as the old charge plates of yore that processed purchases and payments using analog platforms are mostly history, although they do serve as back-ups when digital networks go down.
Where digital currencies will be most used and thus threaten Dollar Hegemony is in the realm of international commerce. Digital currencies offer the fastest and easiest mode to use currency swaps for nations wanting to use their own currencies when conducting trade. As Hudson notes, creating a digital currency is in no way different in its basics from printing currency. Radhika Desai followed by Hudson explain further how the introduction of digital currencies can reform banking systems:
RADHIKA DESAI: This is exactly the sort of “return to Plainville” in our banking that the financial system, as it is today, will never stand for because they have become used to essentially being allowed to create as much credit as they want in order to engage in leveraged speculation.
Borrow money to throw into speculation so that you can make much more money on the same margins.
So this is going to also be resisted, but nevertheless you can see the seriousness of the crisis by the radicalism of the proposals being made, even by quite mainstream writers.
So people have said, according to the Chicago Plan, that there should be a separation of the issuance of money from the issuance of credit.
Central banks essentially would issue central bank digital currencies, so that would mean that all of us would have money issued by the central bank and we would have accounts with the central bank, and then whatever private financial banks remain — I mean in a certain sense [in this scenario] there need be no private financial sector — [they] could only lend against extremely high reserves, which would reduce their profitability.
So this would again transform the financial sector into a public utility and not the casino that it currently is.
MICHAEL HUDSON: Well that’s really the key. Who is going to create money: the government or the banks?
The banks have shown that their bank credit has not ended up in a functional way. It’s become “de-functional”.
The answer in many cases within the Multipolar World will be government banks that reside within the national treasury and are managed by the Finance Minister team. The Hudson-Desai discussion then touches on that point:
Certainly I think that this is the central contradiction. And I think that the Federal Reserve’s actions will on the one hand be pulled by this reality to which Michael and I have been referring, which is the reality of the public character of banking.
Banking needs to be public.
But on the other hand — on the other side there will be another pull as well in the opposite direction, which is the desire of the regulators to pretend as though they are still running a private system which is inherently virtuous.
So Michael, and then the other thing you say, about: Wouldn’t it be cheaper and more direct for the treasury to create a national bank? Well that will be a central bank issuing what is increasingly being talked about in progressive circles — issuing a central bank digital currency, which will allow every citizen to have an account with the central bank.
You don’t actually need any other banks. In the past, you needed banks and bank branches because there was no way in which a central bank sitting in New York or Washington or wherever could reach out to the entire country.
But today with information technology that is no longer an obstacle. So I think that makes central bank digital currencies more possible.
It then evades the necessity of having these private casinos, which we call our financial system today.
And it also then can make more feasible a financial system that is oriented towards serving a productive economy that creates broad-based prosperity.
And as we heard at the Russia-Africa Summit, one of the top main demands is to create an international financial and commerce system that’s fair to one and all that gives no nation an advantage because its currency is the primary trading currency which was Keynes’s major goal to establish at Bretton Woods in 1944-5 but was nixed by the Americans because they wanted to rule the roost and reap massive amounts of rent from the world. From one episode of the four that discussed dedollarization, Desai and Hudson again:
RADHIKA DESAI: Now you can have as full a picture as we can draw of the mounting contradictions of the dollar system. So the dollar system is collapsing under the weight of its own contradictions. On the other hand, alternatives are emerging.
And we’ve talked off and on about the various alternatives, bilateral arrangements between different countries to trade in their own currencies, multilateral arrangements like the Chiang Mai Initiative, the Shanghai Cooperation Agreement, the New Development Bank, the [BRICS] Contingency Reserve Agreement, the creation of new payment systems like the MIR systems and the SIP systems of Russia and China, respectively.
The increasing interest in central bank digital currencies, which will allow countries to ease monetary transactions, particularly those that are intimately involved with what the rest of the world is primarily involved with, which is the expansion of their productive system and their trading relations.
And of course, their mutual productive investment relations.
These countries are not interested in expanding unnecessarily the financial system, as in debts and asset markets or unproductive debt and asset markets. So central bank digital currencies will enable this to happen more easily.
So as these things multiply, what is increasingly going to happen is that the dollar and its value will matter to an ever-narrowing circle of primarily US-based dollar holders. So that’s where we are at.
And in this context, what we then have is the possibility that the rest of the world will fashion a completely new financial system.
Because one of the things that everybody asks is, — OK, so if the dollar is no longer going to be the world’s currency, what will be the world’s currency?
And our answer has always been that it’s not going to be another national currency modeled either on the pound sterling or on the dollar.
One of the things we’ve pointed out is that both of these systems were based on foundations that are no longer possible. And in fact, the dollar system was always, as a result, too unstable and volatile.
So what we are going to see is the replacement of this broken system with a brand new system based on quite new principles.
MICHAEL HUDSON: That’s the whole point. It’s not a de-dollarization as such. It’s a de-neoliberalization. [My Emphasis]
Yes, with Neoliberalism being based on the dollar, the power of Neoliberalism will wane along with the power of the dollar.
Russian Central Bank Governor Elvira Nabiullina is perhaps the most heavily criticized member of Putin’s government, yet Russia continues to grow, prosper and nears completion of several of its National Goals. Both unemployment and inflation are very low, neoliberal policies are clearly nyet! as policies to help Russia’s people are paramount and the goal of Putin’s political-economy. And as explained several times earlier this year, a new economic aim is now in play—Supply side economics, which in Russia’s case means to supply Russians and their economy with everything it requires and then some—more housing, more medical facilities, more tourist destinations, more educational and employment opportunities, etc., not just material goods. On 19 July, Putin held a meeting on the economy and Ms. Nabiullina was invited to explain the impending rollout of the digital ruble:
We are talking, apparently, about the digital ruble. I will remind you what stages the project of creating a digital ruble has already passed and how we will move forward.
Let me remind you that we published the concept in 2021 and discussed it with market participants, interested ministries and departments, and experts. And already at the end of 2021, we created a prototype of the digital ruble platform, in 2022 we built the platform itself, and this year we put it into commercial operation. In other words, we created the infrastructure, which is entirely our development, in a short time, in fact in two years. This platform is built on the so-called hybrid architecture, combining the advantages of a centralized system, distributed ledger technology, and blockchain. On this platform, citizens and legal entities will be able to open digital wallets that will be credited with digital rubles.
The platform operator is the Bank of Russia, which means that the Bank of Russia is responsible to users for operations with the digital ruble and for the safety of funds in digital wallets. All these operations, the remaining funds in digital wallets will be protected by bank secrecy in the same way as regular bank accounts.
Last year, we conducted test operations with 13 banks. In August, we will start piloting operations with real digital rubles with the participation of clients of this pilot group of banks. We can move to this stage thanks to the adoption of the law on the digital ruble, it was adopted by the State Duma, and today-by the Federation Council.
The digital ruble is really a third, additional form of national currency, along with cash and non-cash. All three forms will be equivalent, i.e. one digital ruble is equal to one cash, one non-cash. It complements the existing payment instruments that we use now. These funds will be used for payments and transfers, i.e. deposits and loans in digital rubles are not provided.
What new features does it offer? First, we decided that operations with the digital ruble will be free for citizens. People will be able to transfer digital rubles without commission. Currently, free transfers are guaranteed up to 100 thousand rubles a month through the fast payment system, but banks charge commissions for amounts over this amount. The use of digital rubles will be completely voluntary, that is, each person will decide for himself, based on his preferences and needs, what exactly to pay with: cash, non-cash or digital rubles-just as people now choose how to receive a salary, how to pay in a store: in cash, by card or through the fast payment system.
A digital wallet can be opened through the bank's mobile app, where a person has an account, but you can top up your wallet, make a transfer, or pay in digital rubles through the app of any bank, not necessarily the one that opens the wallet. In other words, a person will have the opportunity to manage their money more conveniently and not depend on the bank's tariff policy.
You will be able to add 300,000 rubles a month to your digital wallet from your bank account – We are going to set this limit, but there are no other limits. At the same time, you can transfer digital rubles to other people and receive transfers without restrictions for any amount and without commissions, as I already said. This will increase competition among banks: they will fight more actively for customers ' money, create new, innovative services, and develop their loyalty programs.
Secondly, the digital ruble will provide new opportunities for businesses. Businesses will be able to save money on accepting non-cash payments. The fee for accepting digital rubles for the entire range of goods and services for sellers will be several times lower than the current acquiring commission-only 0.3 percent.
As you may remember, we have been asked many times to limit our fees for card payments. We know that such restrictions break the business models of banks, and ultimately consumers suffer, because banks reduce loyalty programs, reduce cashbacks, and introduce additional commissions, so we don't want business costs to be simply transferred to citizens.
Third, what else is important? Many countries are now creating their own national digital currencies, and in the digital ruble platform, we initially laid the possibility of cross-border international interaction. There are two possible scenarios. The first is the interaction of our platform and the digital currency platform of another country. The second is the creation of a common settlement center, which can be connected to digital currency platforms of different countries. We are currently discussing both options with those countries that are willing to participate with us in this work.
But first, as I said, we will have to test the digital ruble. We will start with basic operations and then, next year, we will expand to other operations, including further ones: payments, for example, one-touch with NFC technology, we will test transfers between legal entities later, and we plan to expand the use of smart contracts with digital rubles. We really need this piloting in order to configure the entire system and check its continuity. By the way, the system is created taking into account the highest requirements for information security, and only when we are sure that everything is working smoothly, we will make a decision on additional scaling of the digital ruble. According to our estimates, this may happen starting in 2025. Naturally, it will take several years for the digital ruble to enter our daily life, as it once did with bank cards, and then with the fast payment system.
Of course, we will continue to develop our usual payment tools. This year, we plan to introduce new design banknotes for one thousand, five thousand rubles in cash. We will continue to develop both the Mir card payment system and the fast payment system, including our own loyalty program. I would like to emphasize once again that we want to give citizens and businesses the opportunity to choose between different payment and settlement tools. With the digital ruble, the choice will become wider.
In conclusion, with the launch of the digital ruble, Russia will become one of the first countries to have a national digital currency, a national payment card system, its own fast payment system, and its own alternative to SWIFT – a system for transmitting financial messages. And we will continue to introduce profitable, convenient services for citizens, businesses and the state. [My Emphasis]
As you read, there’s nothing mysterious or really anything different about a digital currency, although in Russia’s case loans and deposits won’t be allowed, thus allowing it to be more closely regulated. The key, however, resides in the highlighted paragraph as to the digital currency’s ability to facilitate payments related to international trade as each nation having a digital currency will be capable of directly transmitting payments thus avoiding all choke points. And on the heels of the digital rubles announcement, Sputnik International has an article on the topic:
A business expert told Sputnik that great potential for creating a new global currency system not centered on the West lies at the heart of the growing movement toward central bank digital currencies (CBSCs), such as Russia’s digital ruble that launched on Tuesday.
A law creating a new digital ruble was recently approved by the Kremlin and has begun being rolled out. It is a third form of the Russian national currency, alongside printed bank notes and non-cash bank cards. Despite some superficial resemblances to a cryptocurrency, the digital ruble’s state backing gives it a stability and legitimacy that other highly unregulated digital currencies lack.
On August 1, bank-to-bank (B2B) transfers became the first part of the new currency format to be launched.
Paul Goncharoff, a management consultant at Dezan Shira & Associates in Moscow, told Sputnik that central bank digital currencies (CBSCs) have many of the advantages of other digital currencies but without many of their downsides.
Those include “fast transactions and lower transaction costs at a fee of 0.3%, with the benefit of being secured by the central bank. Unlike cryptocurrencies, the CBDC works entirely within the established financial system, which makes it systemic and government-friendly as opposed to possibly disruptive,” he explained.
He added that integrating Russia’s CBDC with those of other countries will further allow the Russian economy to circumvent the restrictions created by Western sanctions, which include the SWIFT wire transfer system that’s based in Brussels, a city also home to the European Union and the anti-Russian NATO alliance.
“While initially the ruble CBDC was intended for settlements within the Russian Federation and nearby countries to allow efficiencies in trade execution, it can be seen as Russia's litmus test for further expanding its CBDC use internationally,” the expert explained.
Goncharoff noted that other members of the BRICS bloc - namely India, China, Brazil, and South Africa - are actively developing CBDCs as well, so “it should not be too long before interoperability among BRICS member nations occurs. Such digital expressions of these currencies should boost international trade while providing an alternative outside the Western-dominated financial system centered around the US dollar and its restrictively sanctioned environment.” [My Emphasis]
And it seems clear why there won’t be any announcement of a new BRICS currency later this month mainly because one isn’t needed. What’s required is further buildout of the infrastructure needed to create a global digital currency network followed by a conference to decide on how to manage trade imbalances of the sort Keynes predicted and as we see in reality. But the question still begged: Does the world require a non-national trading currency of some sort, like Keynes’s bancor? Or is a properly regulated and managed digital network and currency all that’re required, perhaps with a built-in Tobin Tax on currency speculation to finance the entire system? It would be great to rid the world of the Casino Economy, but a large Bloc will have that as a millstone around its neck regardless what the Multipolar World Bloc creates. Digital commerce and associated systems will be future norms. The major problem is public trust in financial institutions and the governments charged with regulating them, which in Neoliberal nations creates a huge Red Line publics will fight to keep intact. So, it’s easy to understand why the scare stories about digital currencies have merit in some nations, particularly those that lie so brazenly about national economic statistics for political reasons.
Like what you’ve been reading at Karlof1’s Substack? Then please consider subscribing and choosing to make a monthly/yearly pledge to enable my efforts in this challenging realm. Thank You!