Why Are Free-Market Thinkers So Fearful of CBDCs?

As this column routinely states, discussions of money would be much more useful if the talkers actually knew what money was. So many don’t. Evidence supporting the previous claim is all the hysteria among elite thinkers about central banks and the rollout of “digital currencies.”

Supposedly the CBDCs will not only be used by the Fed to spy on us (Ron DeSantis), but apparently because the Fed is the Fed, the CBDCs will soon enough exist as the “crypto” currencies that we the people will have to transact with. The deep in thought and their political mouthpieces miss twice.

They miss in a first principles sense because they don’t get what money flows are: just proxies for the flows of actual goods and services. That’s why there’s for instance abundant money circulating in Beverly Hills, CA, but comparatively very little in El Monte.

Money in circulation is an effect of production: I have diamonds and want your cashmere sweaters, but you want the entrees at the hot new restaurant at the Hotel Bel-Air. Money is just an agreement about value that those with actual goods and services on offer use to get in return for what they have on offer. Precisely because producers want to get, they don’t just accept any currency.

Which is why the deep in thought are wasting their hysteria on CBDCs. These are monetary creations of an arm of government. And governments have a history going back millennia of devaluing the currencies they oversee. It raises a question: why would central banks be any different on the matter of devaluation? The previous question is particularly germane to the present hysteria in light of how so much of the hysterical commentary about CBDCs is coming from those who think central banks the primary cause of all that ails us.

So why fear their CBDCs? Central banks are not just arms of governments that are notoriously bad on the matter of devaluation, they’re also staffed with economists who believe near unanimously that currencies as a stable measure of value (think currencies measured in the constant that is gold) are the stuff of the mouth-breathingest of knuckle draggers.

It’s all a sign that if and when central banks roll out their own versions of crypto or private monies, they’ll be rolling out the unreliable kind. The kind that are frequently devalued given the near unanimous belief among economists that currency devaluation is the path to prosperity.

Which means the producers whose production is the instigator of money in circulation will be unlikely to use that which is unreliable. Think about it. Why would the producers of goods and services transact with digital money that reduces the likelihood of them getting equal goods and services for what they bring to market?

It’s all a reminder that contra all the handwringing among the Fed obsessed about CBDCs being foisted on us, that’s not how markets work. Producers once again produce in order to get, which means they only exchange what they produce for currencies they trust. Put another way, markets decide what currencies circulate, not Treasury departments or central banks.

Some will reply to all this optimism that if true, why is the dollar the world’s currency? Glad you asked. At present the dollar is the most trusted money of all despite its unstable demerits, yet its instability is a signal. It’s a signal that stable private money forms will easily vanquish the CBDCs of tomorrow if and when stability as measure of value defines private money. Get it?