Bit #7: Yanis Varoufakis is Wrong About Central Bank Digital Currencies
A CBDC will not lead to a democratization of, nor a public utility for, payments. It is the same old system and a solution to a problem which doesn’t exist. Bitcoin, the network we love to hate, can serve us much better if, and only if, we are open to the possibilities.
Originally published on Medium on September 8, 2021.
In a recent op-ed[1], Yanis Varoufakis argued that to escape the zero-sum game in which we have socialism for the very few and austerity for the rest of us, “it is necessary, though insufficient, to end bankers’ dual monopoly of the payment system and the money tree. But how?”
Varoufakis has made it clear in several interviews[2][3][4] that central banks have done more harm than good through their monetary policies which make this “socialism for the few” possible. The prime of all examples being quantitative easing. Yet, his solution is to take a Bitcoin-like system of money and place it in control of central banks in order to facilitate central bank accounts for every citizen. He agrees that money transactions should be a public utility, but provides a solution that is within the hands of the few, the wealthiest, and the most privileged on this planet. He promises that such a solution, a central bank digital currency (CBDC), would bring on the dawning of a new era of money transparency and democracy. This, I argue, is not possible and that the solution already exists if we are open to it.
First, there is little doubt, especially in the aftermath of the 2007–08 financial crisis, that there is a revolving door between the private and central banking sectors. In fact, those who enter public service and enact policies that benefit the private banks are more likely to be rewarded when they leave public service[5]. A CBDC under this system will not make it possible for leftists to “wrest control away from” the current oligarchy because the revolving door will continue. A few privileged, good-natured economists and bankers are not capable of changing this from within the existing system.
Second, we cannot and do not trust our governments to protect anonymity and privacy. We have endless historical precedents since the start of the 21st century that tell us that the only entity we can trust with our privacy is ourselves[6][7]. Varoufakis ambiguously suggests an independent ombudsman, like a fourth branch of government, that will check and balance this new system. Let the United States’ three branches of government be an educative example of how corruptible this can be[8][9].
A CBDC is a solution to a problem that does not exist. Varoufakis gives an example in which a central bank account could attract idle savings from commercial banks which would give governments access to prepaid taxes. A CBDC is not required for this since smart contract technology already exists (Bitcoin’s taproot upgrade for example) and can be used to achieve this goal. All that is needed is for a government to create the law that requires any existing commercial bank to sign a smart contract with the government, in a custodial manner, that would promise this 5% discount. Any commercial bank that refuses, will be operating illegally under the nation’s laws. Imagine if a coalition of governments implemented the same kind of laws and smart contracts, which locked these commercial banks in the scenario that Varoufakis described.
Beyond these concerns, I fear that Varoufakis does not understand how cryptocurrencies work, because if he did, he would understand that the blockchain alone is not enough to make a money network function democratically, and resiliently, like Bitcoin’s network does.
Varoufakis is erroneous in his understanding when he claims, “since the quantity of money would be set by the central bank, there would be no need for Bitcoin-like mining which requires planet-endangering electricity consumption.” First, what is described here is no longer a distributed network, nor one that is democratized. For if there is no need to secure a network through proof-of-work, then this is simply the same centralized system that we have right now, because the security will come from the central bank owning and operating the entire network.
The second error is to claim that Bitcoin’s energy use is “planet-endangering”. As of publication, Bitcoin’s energy usage accounts for approximately 0.42% of global electricity and 0.08% of total energy consumption[10]. Data centers, which house our cat videos, family photos, and the entirety of YouTube, account for 1.5–3% of global electricity consumption[11]. Bitcoin’s energy use is less than 2% of the United States’ and Varoufakis ignores how much energy is used for refrigeration, the financial sector, household driers and more (all of these consume multiple times more energy than the Bitcoin network)[10][12]. The amount of methane that is flared from oil and gas production would run 9 Bitcoin networks[10]. Bitcoin’s renewable energy use is anywhere from 28–56% of its total operations and due to how the mining algorithm works, miners will have no choice but to switch to renewable[11]. In 2020, only 12% of US energy consumption was renewable derived[13].
The third contentious (though not erroneous) point here is that central banks set the money quantity. Varoufakis dislikes a fixed money supply, this is clear. Bitcoin’s supply is indeed capped at 21 million, with a steady — yet approaching zero — inflation for the next hundred years or so. His disapproval of this is understandable because he is advocating for a green Keynesian approach to dismantling labor and share markets. Yet, Varoufakis has been skeptical of Keynes with respect to knowing when to loosen or tighten monetary policy. In a 2000 interview with late mathematician John Forbes Nash, he noted that, “there is an interesting question if capitalism allows for such an optimal switching point — a question that some of us on the Left post.”[14]
If it is true, as Varoufakis believes, that we are really in a post-capitalist world, or at least one where capitalism is largely on life support through quantitative easing and debt, then perhaps the reality is that the transformative opening is upon us and all that remains is a strategic blow to the core of financialization. I believe that Varoufakis thinks this can be done through a green Keynesian led central bank, but this is not realistic. Keynesian economics, in whatever form applied, is a managerial approach to capitalism, not a means of undermining it. Bitcoin’s capped supply is too limiting for the financial needs of oligopolies and monopolies. As leftists, we ought to consider the repercussions of what this means for us. At a time when climate activists are calling for economic degrowth, maybe this is a valuable weapon.
Bitcoin is counter-intuitive, it is not what you think it is, and it can satisfy the necessary, but insufficient condition, if we allow ourselves just a moment to be open to something that is different from anything we have experienced in the evolution of money. Bitcoin belongs to no one and yet to everyone who engages in the network. Bitcoin provides one unique solution to the original question of, “How?”, which is the destabilization of banking and finance, the core of our rentier economy. Just take a moment and remove the speculation and see it for what it really is: a ticking bomb. Bitcoin is a network built on consensus, it is rules without rulers. Capitalists think they are buying into the best interest-bearing commodity this century has seen, but they are confusing the forest for the trees. It’s the network — the public utility — that matters, and they can’t own it. Surely, we leftists are smart enough to understand what is coming. Let us act in a fashion that favors us before it is too late.
[1] https://braveneweurope.com/yanis-varoufakis-a-central-bank-cryptocurrency-to-democratise-money
[2] https://www.democracynow.org/2021/6/21/summit_for_vaccine_internationalism
[3] https://www.rt.com/business/240073-european-central-bank-asphyxiating-greece/
[4] https://www.youtube.com/watch?v=pJ71815alQk
[5] https://www.oecd.org/corruption/integrity-forum/academic-papers/Wirsching.pdf
[6] https://www.bbc.com/news/world-us-canada-23123964
[8] https://www.cnbc.com/2021/08/27/supreme-court-blocks-biden-administrations-eviction-moratorium.html
[9] https://www.huffpost.com/entry/obama-expand-war-powers-trump_n_586c1b3de4b0d9a5945ced56
[10] https://cbeci.org/
[12] https://www.lynalden.com/wp-content/uploads/bitcoin-energy-comparisons.png
[13] https://www.eia.gov/todayinenergy/detail.php?id=48396
[14] https://www.yanisvaroufakis.eu/2015/06/02/in-conversation-with-john-nash-jnr-on-ideal-money/
