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Former Goldman Sachs Executive: CBDC the Biggest Financial System Overhaul Since Bretton Woods

Raoul Pal, a former Goldman Sachs executive, is convinced Central Bank-backed digital currencies (CBDCs) are here to stay and represent the biggest overhaul of the global financial system since the Bretton Woods accord of the 1970s.

BoE, IMF, and ECB take on CBDCs

In a tweet shared on Oct 18, Paul points out to several developments and high profile mentions of CBDCs by the IMF and central banks including the Bank of England (BoE). 

In a statement, the IMF said CBDCs are coming soon. Earlier, the IMF advocated for the currency even though they didn’t provide any real clarity outside of leveraging digitized fiat from being used primarily for fiscal stimulus outside of existing monetary mechanisms. 

However, the ECB seems to be preparing its system. Beyond preliminary research in collaboration with central banks of member countries, they are making it clear that CBDCs are inevitable and is just a matter of when.

Meanwhile, the BoE, adjudging from Mark Carney’s comments, view the CBDC as a means of by-passing the USD hegemony in such a way that its dominance in “world trade, flows and debts was not so pronounced.”

Policy Changes in the United States and the Value Proposition of the CBDC

Over and above everything, it is in the United States where subtle but critical regulatory changes are being made. For instance, the recent approval by the Office of the Comptroller of Currency (OCC) to accept national banks and savings associations to custody digital currency points to shifts designed to aid in the future integration of digital currencies into the United States financial systems.

Of note, Pal notes the primary advantages of CBDCs. One of the many is the ability of central banks to directly give and take money from individual accounts. As such, they can manage fiscal policy outside of the government balance sheet. This way, they can circumvent the banking and fiscal system forever changing the current fiscal and monetary policy.

With this, Pal observes that there will be flexibility. Besides, banks can set different interest rates irrespective of the current capital availability or other risks. It is because central banks, by issuing out CBDCs, can define the cost of capital to “whomever they please” while concurrently absolving spending responsibility in times of crisis.

As reported, the PBoC and China are galloping ahead. Their digital yuan is set for a likely activation before the 2022 Winter Olympics.

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