CASHLESS SOCIETY 2020: How Banks Mint Money and What’s Restraining Digital Currency

By Agnico-Eagle (Agnico-Eagle Mines Limited) [CC0], via Wikimedia Commons

Bill Gates, a plague and central banks have converged like the perfect storm to propel the US toward becoming a cashless society and toward using digital ID’s for all personal financial transactions. The coronavirus bound these forces together, compounded them with fear to overcome inertia, and is accelerating society down the digital-currency highway.

(All of that is laid out in these two recent articles: “CASHLESS SOCIETY 2020: Bill Gates Goes Viral on Digital ID and Digital Currency” and “CASHLESS SOCIETY 2020: Coronavirus Swings Society to “Touch Free” Digital ID and Digital Currency.”)

Many of my Patron Posts over the last year have laid out the interest of central bankers in developing central bank digital currencies. They call them CBDCs for short. You know when they start talking in abbreviations, they are using jargon they throw around a lot, to where they need a shortcut for saying it. In the past year, central bankers started talking about CBDCs openly, as in outside their own circles … as if public acceptance is a foregone conclusion.

Nothing I’ve shared in those Patron Posts has come from conspiracy quarters. All of it for more than a year has come directly out of the mouths of central bankers — much of it via the mainstream press or, often, from their own central-bank websites.

I take that approach to stay with what we can tell they are planning beyond any doubt from their own words and to maintain a high path of credibility about what I claim they are planning.

Central banks have reached their limits of effectiveness

Without the gold standard, US deficit spending has no imposed limits, except the federal government’s imposed (and bankers’ self-imposed) inflation limitation on the Federal Reserve’s ability to create money to finance the deficit.

Modern Monetary Theory also says the government can borrow as much money as it wants with the Fed creating that money as needed, limited only by that same inflation limit.

It is always inflation, in the end, that limits how much money banks can create. It’s a reality they cannot circumvent by decree, but a reality they must manage, or their money becomes almost worthless.

We have arrived at MMT. The government is doing the borrowing and already distributing “helicopter money” to the masses, but the economy is still sinking. The Federal Reserve is already funding that “fiscal stimulus,” though it is really not so much “stimulus” as “emergency aid” in that all that money is incapable of lifting the economy. It is merely softening its fall.

As a result of the government’s self-inflicted emergency shutdown over COVID-19, which necessitates emergency funding, the federal deficit is rising much faster than it did during any part of the Great Recession; yet, the economy is still falling.

It is clear that the Fed with its free trillions can no longer keep everything going own this time. We’ve already examined in past Patron Posts and in regular articles here how that truth has revealed itself as we’ve seen how much more of the old FedMed it now takes to get the stock market to rise, even as the economy continues to fall hard. We’re on track for more
QE by almost an order of magnitude.

Now, I want to share the Fed’s own acknowledgement of this. That poor results of massive stimulus have forced the Fed to state outright that it cannot save the economy on its own:

Federal Reserve officials on Friday stressed they were thinking about more and innovative ways to help the economy and not about pulling back support.

“The Fed is going to need to [do] more in terms of other actions to bridge this period” of sharp downturn and slow recovery, said Dallas Fed President Robert Kaplan, in an interview on the Fox Business Network.

Kaplan said he thought there would be a need for stimulus to get the economy going but that it would likely have to come from Congress and the White House.


I’ve long said the next recession would take us to where the Fed could not keep all the plates spinning and lift the economy out of its morass as it did mostly on its own coming out of the Great Recession. Whether or not that would have been true even without the coronavirus, we will never know, but it certainly is true now.

Powell has also now said as much:

Federal Reserve Chairman Jerome Powell said the trillions of dollars spent to support the U.S. economy in the wake of the coronavirus pandemic will likely not be enough if there is to be a robust recovery…. “I would say that it may well be the case that the economy will need more support from all of us if the recovery is to be a robust one,” Powell told reporters….


I believe the economy won’t recover for years without more, but Powell can’t say things that starkly that without crashing the stock market and hurting the economy even more. Central bankers tread lightly. He has, however, clearly placed the ball back in the government’s court to spend more and borrow more (from he Fed) to power us through the pandemic.

Central banks don’t need digital currency to stimulate the economy or save stocks

Let’s be clear: almost all money today is digital already. Less than 10% is struck at a mint or printed on paper. When we talk about “money printing,” we’re mostly talking figuratively. And none of it is backed by gold.

Let’s also be clear that moving to CBDCs, as I’ve often shown is coming in my Patron Posts, is not going to do anything to stimulate the economy. Digital money is not more stimulative than any other form of money. People will not buy more and juice the economy just because the money is in digital form.

The Fed quite simply can create as much money digitally (“out of thin air”) as it needs to or wants to, and the government can spend as much as it needs to or wants to, whether we go to touch-free digital currency or not. Both entities have always been limited only by the constraints of inflation — the desire not to make their money less precious. CBDCs are limited by inflation, too, but they could make it easier to manage inflation if inflation rises too rapidly.

That is because almost all money is created digitally anyway by the Fed adding mere keystrokes to the reserve accounts of its member banks. That new money gets magnified under the principle of “fractional reserve banking” with those member banks leveraging those reserves about 70:1 to create loans that they have no gold or other valuable assets for backing.

[Update after publication of this article as pure confirmation: Powell said on 60-Minutes last night, “We print [money] digitally… we have the ability to create money digitally and we do that by buying Treasury Bills or bonds or other government guaranteed securities.” (Zero Hedge) That’s no news here, but I just wanted to come back and add this 100% confirmation of what I wrote here now that it comes directly from the highest source, so there is no more room left for argument. Apparently, some people did not realize that is how the Fed works, so Powell decided to clear that up once and for all. Powell also dismissed any prospect of the Fed setting a negative-interest-rate target for its Fed Funds Rate, but said, with “do whatever it takes” flare, the Fed’s existing ability to create money digitally would be employed to essentially infinity and beyond in the months ahead. That sugar rush plus the hope of a vaccine based on a safe test of only eight very healthy people sent the stock market rocketing to the moon again. Sugar rushes, however, do not carry you through the entire year of economic decline that Powell also said we can fully expect, which the market, of course, fully ignored. (Nothing in this article has been changed in light of Powell’s interview, other than the addition of this note.)]

Those member banks have your money from deposits, which they put in reserves, along with whatever money the Fed has created in reserves for them via interest on excess reserves or interest on bond transactions, etc. The banks, then, leverage all of that by whatever reserve-lending ratio the Fed allows to create loans out of thin air. (See “The US Federal Reserve for Dummies: What is the Federal Reserve System and What is the Gold Standard?“)

Having written the loan docs, the banks simply writes a check or makes an electronic (digital) deposit to some party based on that loan amount. It doesn’t take that money out of reserves; it just immediately creates new money in the economy (to the extent that banks do this in amounts greater than what they actually have in reserves or on deposit). The recipient of the money created by that loan spends the money, and then other parties spend, and so on, and so on. It’s now in circulation and out of bank control.

That digitally created money does all the same things a minted gold coin would do and maybe more because you can move it more easily; but it is backed by nothing but trust in the Fed’s management of the Federal Reserve System.

So, the new overt press by central banks to go digital has nothing to do with some financial need created by COVID-19. The Fed can legally create as much money in reserve accounts as it wants or change the reserve ratio however it wants to allow member banks to create more money … so long as the Fed maintains price stability. CBDCs do nothing to allow them to create more.

Inflation is something that any monetary system has to balance against. The right amount of new money by any means of creation is the amount that allows people to do all the business they want to do without creating inflation that undermines the economy or the value of the money they are using.

More people, for example, means we need more money, or else the price of everything must drop so that each person can buy the same amount of goods and services individually with a smaller share of the existing money pool. People are in aggregate buying more goods and services due to there being more people. So, the price of everything has to come down to sustain the same level of individual buying if money supply doesn’t rise proportionate to population growth.

If money supply does not grow with population and prices don’t fall, people must all do with less individually. That creates its own kinds of social strains as people claw for increasingly tight funds under growing population, while manufacturers and retailers are reluctant to constantly lower prices.

Going off the gold standard

You can see where deflationary cycles are not pretty. Thus, everyone prefers some level of price stability. That was one reason for moving off the gold standard where money was limited by the amount of gold in stock, regardless of how rapidly population grew, and it was growing quickly under US immigration plans. That can create deflation cycles like the Great Depression.

For decades after the Great Depression but under the continuing gold standard, the government managed around that problem by controlling gold ownership and mandating the value of gold and by changing the degree to which gold had to back money (how much gold could be leveraged).

Eventually, the US government gave up that pretense of a gold standard and went off the gold standard entirely to the “fiat” system we have now because the manipulation in gold prices and gold reserve ratios to avoid deflation cycles was getting to be a joke.

I remember how people said the US dollar was backed by gold but had to note that only ten cents on the dollar was actually backed by gold. We scoffed at the pretense that we were even on the gold standard any longer since the government kept manipulating it in order to avoid deflation, especially after population surged during the baby boom. Finding gold at the rate we were adding people simply was not possible. Hence, the manipulation then the move to unhitch from the standard and end the pretense.

Moving off the gold standard moved us from trying to avoid deflationary cycles like the Great Depression to having inflationary cycles as banks became too loose with money once they no longer were restrained by any form of gold standard.

Inflate the money supply too much, however, when you are unrestrained by gold and prices inflate along with the inflated supply of money because money becomes less precious. That’s the risk of fiat currency that requires a lot of political restraint. It’s a balancing act where the goal is price stability.

CBs have wanted to err’ on the side of a predictable 2% inflation target because they claim deflation is scarier than inflation in that it has a self-fulfilling deceleration effect: if people know things will cost less in the future, they are more likely to delay their economic activity. I think the bank’s greater concern may be that they are less likely to take out bank loans to buy now if they can save, collect interest and buy for less later.

If prices are likely to rise, on the other hand, people are less likely to delay economic activity. So, inflation is seen as an economic accelerant. Run the economy too hot, however, and inflation blows out of control.

The Fed claims it has not been able to sustain 2% inflation, but the fact is that it easily could, except that it chooses to create all of its fiat money in banks, which choose to circulate all the money in financial markets; and money only creates inflation where money flows. So, all inflation during the Great Recession and the Fed’s Not-so-Great Recovery has happened in financial assets.

Now that the government is handing out helicopter money, the Fed and government in consort could immediately create all the inflation they want in the general economy by putting more of that money into the hands of people where it would start to reinflate the price of everything, but they would have to do that at a level that exceeds the money being destroyed by COVID-19 to cause inflation. Quite easily done financially if they want to, but politically difficult, as not everyone is keen on the idea of blowing up the federal debt.

Going purely digital with money is not going to solve any of those problems, but it may add more levers of control for the central planners.

What digital currency accomplishes for central banks

It is really just a shift of power away from your personal autonomy and toward banks. If inflation runs hot, CBs can raise fees on all of your transactions to suck some heat out of the system, reducing money supply and reducing your willingness to move your money while keeping the banks’ income constant or improving. They are, after all, central planners who have long believed they can manage the economy better than a free market (which we haven’t seen in a very long time).

Digital currency increases bank profitability by having less transaction friction. At the same time, it offers you greater convenience, but at the cost of less autonomy because it gives the banks more ways to trap you into paying fees if you want to move your own money or just want to store your own money. You can’t take it outside of their management and their possession.

With CBDCs, central banks can manipulate your choices more directly. They can also monitor all that is happening in the economy down to the most finite transactions. Even if they don’t track who spent the money, they would have the potential to know what every cent was spent on and where it was spent.

Realistically, central banks don’t want negative interest rates any more than you do if they can be avoided. Negative interest rates have proven all over the world to be damaging to banks and perilous for economies to navigate. So, you can strike that off your list as a primary reason central banks want digital currencies. (In our Patron Posts we’ve seen central bankers telling each other that negative interest rates aren’t the best reason for going to CBDCs.)

Central banksters would prefer to successfully manage the economy without having to go to negative interest to stimulate the economy. As pointed out in one Patron Post, going negative has resulted in some banks in some nations paying people to take out mortgages — not something banks inherently like to do.

The way that worked was that the mortgage holder had to make regular payments, but the bank wrote down the principle each month by more than the payment. It’s insane, and even banks know that it is not the business model they prefer. Central banks essentially forced it by creating money in reserve accounts and then penalizing banks if they held on to it.

Banks have struggled a lot to figure out how to work in a negative-interest environment when their models have been built for centuries around making money off positive interest. They’d rather not.

Beware that banks don’t fully think of the money they manage as your money. At the higher CB level, they consider all money as being their money since they created all of it out of loans they entrusted into your hands to put to specified uses, such as to buy a house or a car or inventory (“flooring”) for your auto dealership. They think less of themselves as stewards of your money than you as a steward of theirs. That high-minded central-bank attitude filters down through the system to varying degrees.

After that first collateralized loan where the purchase was specified, however, the newly created money migrates into generalized use anywhere people want to spend it. Banks would like to control what you can do with it at all stages to some extent as well as have a clearer understanding of how much if flowing where in the economy.

One example of something banks might like to control: if they create lots of new money, and you just pay off loans, that doesn’t help them because they were making interest on those loans, and now they’re not. All they did was create money for you to use to take away one of their income streams. If, for example, they create money by loaning it to the government at low interest, and the government gives it to you as a stimulus check, and then you pay off part of your highest interest loan with it, that doesn’t help the banks.

That is largely what happened with the “stimulus” checks:

This ‘new threat’ to the U.S. economy flies in the face of conventional wisdom“:

Americans are slashing their spending, hoarding cash and shrinking their credit card debt as they fear their jobs could disappear during the coronavirus pandemic.

That is the lead in a CNN Business story this week about how U.S. consumers have been navigating one of the greatest financial curveballs the world has ever seen.


It seems prudent, considering the climate, but how irresponsible of you not to think of serving the economic interests of the nation (and its banks) foremost in your personal financial plans.

Credit-card debt dropped by its biggest percentage in more than three decades, while savings jumped to levels not seen since the Reagan era.

We can’t have that! You are taking too much responsibility into your own hands. Or, as banks would put it, you are just hording cash (which is fine when they do it, but not when you do as they don’t make money when you pay off loans, instead of taking out more).

That is good, right? Not necessarily…. “Although caution is a logical response to that uncertainty, hunkering down also poses a risk to the recovery in an economy dominated by consumer spending.”

Let’s not be so negative

If the banks could make sure that negative interest went ONLY TO YOU, they wouldn’t mind it so much. You see, you (the consumer) are the great problem in the economy right now. You’re not doing all you should be.

The banks are creating money for the government to drop from helicopters into your hands, and you’re not using it to buy more stuff like they thought you would. You’re using it responsibly to pay down down debts and/or saving it to stabilize your own financial situation. That does not create any economic stimulus at the moment (though it makes the economy more sound for the future).

There might be times, then, when negative interest would be helpful to prod you into being a good consumer when you refuse to be, as when you act in the interest of self-preservation … so long as banks don’t have to experience the negative interest. They really hate that. That’s being too negative.

So far, the only way central banks have been able to get negative interest on consumer savings is to force it on their member banks reserves and hope the banks will pass it along in order to get people to take money out of the bank and draw down those reserves built from deposits; but the banks didn’t pass much along because they feared consumers would simply take their money out of the bank altogether. So, banks got caught in the squeeze.

Right now, you can move cash without any fees if you have solid cash. So, banks are limited in their ability to raise fees. If they can charge you interest for keeping your money in the bank, they can entice you to keep the money moving as they want you to.

Banks have stated they don’t want to do any of that. You may reasonably think they are just covering, but I think the whole concept of negative interest is as weird to central banks and their member banks as it is to us. I do think they would like more control, though, and they could certainly use that to apply negative interest directly to you if they couldn’t get you to spend money any other way. Savings, after all, diminish your need for loans down the road.

The Fed has said that going negative is not on its stimulus agenda. It probably cannot go far down the negative path in a democracy anyway, even if you embrace central bank digital currency, without creating political rebellion; but the Fed wants to inure as much control to itself and to the banks that own the Fed as it can to expand the Fed’s range of options for centrally controlling the economy because central planners always believe economies need their help.

Bankers always believe new money should flow to banks first. Free markets are messy, and free money to the average Joe doesn’t help the banks get rich first and foremost. If banks could stomach that, they would have created the inflation they profess to wanting years ago by finding ways to get new money straight into depositor accounts. It’s fine to create it in bank reserves, but not in your reserves.

A move to CBDCs ends your ability to circumvent any moves banks want to make in what they charge and how they charge it, whether it is negative interest or fees or lockdowns on how the money is used. The Federal government, for example, may like currency lockdowns. How much easier to stop you from going to a restaurant during a coronacrisis if restaurant transactions are just locked out. Can’t do that with cash.

I think banks mostly want to make sure you cannot just move all your money to hard cash if the banks go wobbly in an economic upset or to avoid bank transaction fees that you find exorbitant.

It’s not about the stimulus, Stupid

(No, I don’t think you’re stupid. I’m sure my readers readily see this is all about control. This article is to buttress your awareness of that.)

Since central banks already have the ability to create money at will digitally, you know they’re not pushing for CBDCs now because they need digital currency to stimulate the economy. Central banks are merely exploiting the fears created by COVID-19 to accelerate your acceptance of the cashless move central banks and the governments they own prefer for control and profitability reasons.

I’m laying all this out as background because my next Patron Post, which I plan to publish on Patreon tomorrow, will be about moves central banks are making to exploit the coronacrisis. You can become a patron now and go through back articles to catch up on how banks are moving to CBDCs, and you can see in the next Patron Post how banks are exploiting the current crisis for a move along the lines I talked about in my last “Cashless Society” articles.

This post was to give you the lay of the land and make clear that the move to digital cash has nothing to do with economic stimulus. The Fed can create all the inflation it wants to right now with a wave of the FOMC’s magic wand that has flashed trillions in digital cash into existence already. More money won’t solve the problem if you, as a consumer, are just going to pay down debt with it. More control (in their view) might help.

What is stopping central banks from issuing CBDCs right now?

The limiting factor that has stopped banks from issuing CBDCs, as pointed out in past Patron Posts (if we stay with their own words), is that 1) they don’t have the technology in place and 2) social/poltical resistance.

As to the first barrier, conspiracy theorists have long believed banks had a digital currency ready to fall off the shelves, but it is clear they don’t for several reasons:

  1. China has been clear it wants to be first, and wants to do it now, and Chinese officials have the dictatorial authority to do that, at least, within their own nation … whether China’s people want it or not. They’ve already told their people and the world they will issue a CBDC as soon as they are confident they have the right technology, and the people of China already largely use digital transactions anyway. China is technologically very advanced, but it clearly doesn’t quite have the technology to do this … until about … now (as I’ll also reveal in the next Patron Post.)
  2. We’ve seen how all the the digital currencies (cryptocurrencies) that do exist are not even slightly stable. Soaring value is the last thing you want in an actual currency. Anything that can soar can also plummet. You want something stable so that prices based on that currency remain stable and predictable for months to come. People don’t want to have to reprice continually. Currencies are not meant to be investments. They’re meant to be a stable, trustworthy, transactionable stores of value. You want to know that, if you bank your paycheck in that currency in the second week of the month, you can pay the rent at the end of the month. If you put part of it in savings this month and keep doing that, you can make that downpayment on a car in eight months. So cryptocurrencies that soar in value do not make good currencies because they also plummet in value. You want as stable a platform as possible — something you can bank on.
  3. We’ve seen in past Patron Posts that the Fed has indicated by its words that it is not interested in being the first to have a CBDC and will let others work out the bugs.
  4. We’ve also seen that the Fed is confident that, regardless of who develops the digital currency technology, the Fed will ultimately regulate it under its current government authority if that currency is to have full government support. We’ve seen that the Fed, which is not a fin-tech company, prefers to take more of a regulatory roll than a technological roll. The Fed doesn’t have to own the technology to use its government influence to make sure it controls whichever technology gets official government charter. It’s like going “IBM compatible” was in the early days of personal computers. It didn’t matter much who built the computer back then, so long as it was “IBM compatible.” Being Fed-compatible will be everything for banks and for the government. The Fed doesn’t have to take the failure risks of being first when it can let creative competition create the best products and then seize regulatory control upon the first serious breakdown in digital use (or even before just by persuading congress).
  5. The foremost reason, I think is this: I’ve pointed to the simple logic that central bankers don’t have access to any better talent than Google and Facebook. While big companies like Facebook have been racing to issue a digital currency of their own, we’ve seen in Patron Posts how they struggle with developing the technology for Libra and other digital currencies as well as with approval barriers. Therefore, the Fed does not have some ready-to-roll-out technology made by unknown geniuses who exist an order of magnitude smarter than the best minds trillion-dollar companies like Google, Amazon or Facebook can hire to create digital currencies.

COVID to the rescue

The other factor that was holding central banks up was public resistance. The US public has not been ready to embrace going entirely digital. As the technology train is now arriving at the station, however, COVID-19 is conveniently helping the Fed out with this final barrier.

The Coronacrisis has set up the perfect opportunity for getting rid of government and public resistance. With the government creating helicopter money, look at what happened to those who wanted physical checks. People’s preference for checks and dollar bills made it hard for the government to get the money out immediately.

Many people will be waiting all the way until August for the IRS/Treasury to process that many checks and mail them; but everyone who was set up for direct-deposit (digital transactions) got their checks right away. That limits how effective government “stimulus” checks are.

To get people to accept something like Federal Reserve bank accounts that use only Federal Reserve CBDCs, the US government may decide all stimulus “checks” will happen only in the form of automatic deposits to a new Fed bank account opened in your name. The free money will be yours so long as you get chipped or tattooed in order to get access to it.

Or, if Nancy Pelosi gets her new push for guaranteed basic income through congress someday after the next election as a part of coronavirus relief, CBDCs via the Fed will be the only form in which you can receive that free basic income. It’s going to be hard to turn down piles of free money even month of your life in destitute times. “Just get your vaccine with its digital tattoo, and access your free money now!” (See the Gates article referenced above.)

My belief is that it won’t happen fast enough for the present stimulus checks or even the next set, but you can see down the line how the crisis might be manipulated to either encourage or press people into CBDCs.

That may help reduce public resistance and government resistance at the same time. In tomorrow’s (Monday’s) Patron Post, I’ll go more into how central banks are already using the coronacrisis to overcome this resistance.

CBs want to move you onto something purely digital for greater efficiency and greater central control. So do governments, but in a democracy they both have to have your cooperation to get there. Fear is a great helper in overcoming resistance. Coronavirus is providing a fear motivator. My next patron post will show you how the Fed is using that fear.

Up tomorrow on Patreon: “CASHLESS SOCIETY 2020: Central Banks Exploit the Coronacrash to Bring on Coronacash”

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