CBDCs are a declaration of war against the banking system, Richard Werner, a development economist and professor at De Montfort University, told Cointelegraph at the Web Summit on Nov. 4.
Known for his theory of quantitative easing, published nearly 30 years ago, Werner is a proponent of decentralized economics. In an exclusive interview with Cointelegraph Editor-in-Chief Kristina Lucrezia Cornèr, he discussed the challenges surrounding decentralization, the role of central banks, and how blockchain can help promote transparency in economies.
This interview was part of Cointelegraph’s extensive coverage of the Lisbon Web Summit, one of the world’s leading technology conferences.
Cointelegraph: Do you think a decentralized financial system is really possible?
Richard Werner: Yes, because of course what we have is a lot of forces for centralization by the central actors. They love that, and they want more centralization, but that is very dangerous and very bad. The extreme case is the Soviet Union, through key periods it was a very centralized monetary system with a single central bank, and that was not a good system. But that is what central planners in other countries, like the ECB, want. [Banco Central Europeo].
The ECB says there are too many banks in Europe. Why? And who are they to say that? Well, they wish it was just them. They don’t want competition. They want to go back to being the central bank, the only central bank. So, that’s where the issuance of CBDC’s comes in because through CBDC’s the central planners are thinking that it is a declaration of war against the banking system. The CBDC is really, literally, the central bank saying that we are going to open checking accounts, ordinary banking for the ordinary public at the central bank. In other words, the banking regulator is suddenly saying that we are going to compete against the banks because the banks don’t stand a chance. You cannot compete against the regulator.
CT: And is decentralization possible in this scenario?
RW: Yes, it is, but only if we create a lot of local community banks, proper banks with a banking license, because a banking license is a license to literally print money. When a bank grants a loan, do you know where the money for the loan comes from? It does not come from deposits. That’s just a breakdown of what the bank owes you the money. The new loan is created by the bank and added to the money supply, and that is allowed when you have a banking license.
A banking license is a license to print money, and if we have a lot of community banks, that’s a decentralized system. They lend only locally to the local area, to small local businesses. That is a productive loan, that is sustainable, not inflationary. So you get growth and prosperity, employment, job creation, stability, no inflation. But when there is a centralized system and bigger banks, they buy the small banks, or you only have one central bank.
They also want to do only big business. The bigger the banks, the bigger the deals they want to do, but the big deals are usually asset loans where the bank creates money. People buy assets, which creates asset inflation and asset bubble. That’s why we have them. And then there’s a banking crisis because it’s always, you know, dependent on continuing to create money.
CT: What is the role of the blockchain in this case?
RW: It usually means the potential for decentralization by definition, because it is a distributed ledger. Why? Where does this expression of distributed ledger come from? The general ledger is the double entry account, accounting, assets and liabilities, the balance sheet of a company and a bank.
The standard system is a centralized ledger in the hands of the central bank and then the banks. Because the more banks you have, the more decentralization you already have, but a fully decentralized ledger is where everyone can check using technology for transactions. You have this post and check and therefore accountability. That is why it is an interesting tool. It gives this transparency and local responsibility if used in the right way. I think, again, it’s an ideal combination of blockchain and its combination with local banking because then the service is maximized.
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