Central bankers talk the talk, but fail to walk the walk

Trust is a topic increasingly being discussed. Whether it is trust in each other, in the media, or in our authorities, trust is generally seen as a cornerstone of a strong and well-functioning society. The topic was also the theme of the World Economic Forum at its annual meeting in Davos earlier this year. Even among central bank economists, the subject is becoming more prevalent. Last year , Agustín Carstens, head of the BIS (“the central bank of central banks”), said that “[w]ith trust, the public will be more willing to accept actions that involve short-term costs in exchange for long-term benefits” and that “trust is vital for policy effectiveness”.

It is therefore interesting when central banks or others pretend as if nothing has happened even when trust has been shattered.

Just as in Sweden and in hundreds of other countries, Canada is planning to introduce a central bank digital currency (CBDC), a new form of money where the central bank or its intermediaries (the banks) will have complete insight into citizens’ transactions. Payments or money could also be made programmable. Think of transferring ownership of a car automatically after a successful payment to the seller, to payments being denied if you have traveled too far from home.

“If Canadians decide a digital dollar is necessary, our obligation is to be ready” says Carolyn Rogers, Deputy Head of Bank of Canada, in a statement shared in an article .

So, what do the citizens want? According to a report from the Bank of Canada, a whopping 88% of those surveyed believe that the central bank should refrain from developing such a currency. About the same number (87%) believe that authorities should guarantee the opportunity to pay with cash instead. And nearly four out of five people (78%) do not believe that the central bank will care about people’s opinions. What about trust again?

Canadians’ likely remember the Trudeau government’s actions against the “Freedom Convoy”. The Freedom Convoy consisted of, among others, truck drivers protesting the country’s strict pandemic policies, blocking roads in the capital Ottawa at the beginning of 2022. The government invoked never-before-used emergency measures to, among other things, “freeze” people’s bank accounts. Suddenly, truck drivers and those with a “connection” to the protests were unable to pay their electricity bills or insurances, for instance. Superficially, this may not sound so serious, but ultimately, it could mean that their families end up in cold houses (due to electricity being cut off) and that they lose the ability to work (driving uninsured vehicles is not taken lightly). And this applied not only to the truck drivers but also to those with a “connection ” to the protests. Court rulings or reasonable suspicion were not required.

Without the freedom to pay for goods and services, i.e. the freedom to transact , one has no real freedom at all, as several participants in the protests experienced.

In January of this year, a federal judge concluded that the government’s actions two years ago were unlawful when it invoked the emergency measures. The use did not display “features of rationality - motivation, transparency, and intelligibility - and was not justified in relation to the relevant factual and legal limitations that had to be considered”. He also argued that the use was not in line with the constitution. There are also reports alleging that the government fabricated evidence to go after the demonstrators. The case is set to continue to the highest court. Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland have also recently been sued for the government’s actions.

The Trudeau government’s use of emergency measures two years ago sadly only provides a glimpse of what the future may hold if CBDCs or similar systems replace the current monetary system with commercial bank money and cash. In Canada, citizens do not want the central bank to proceed with the development of a CBDC. In Canada, citizens want to strengthen the role of cash. In Canada, citizens suspect that the central bank will not listen to them. All while the central bank feverishly continues working on the new system.

“Trust is vital”, said Agustín Carstens. But if decision-makers do not pause for thoughtful reflection even when trust has been utterly shattered as is the case in Canada, are we then not dealing with lip service? And how much trust do these decision-makers then deserve?

If you wish to subscribe, sign up here!

Cover image created with Dall-E