In a dangerous double-whammy, monetary policy not only makes America even less economically equal, but economic inequality also frustrates monetary-policy transmission.
Thus, recessions are deeper and longer, reversing the good-times income gains central banks take as proof that their policies are not dis-equalizing even as the wealth divide grows ever wider.
Because monetary policy when rightly judged in terms of both income and wealth adversely affects economic equality and inequality stymies monetary policy, we won’t have macroeconomic-effective monetary policy until we have equality-focused monetary policy.
Transaction and savings accounts are critical to financial security and inter-generational economic equality.
Nonbank offerings might increase financial inclusion, but pose risks to safeguarding savings, personal privacy, and consumer protection unless or until consumer-finance standards symmetrically apply to banks and nonbanks offering like-kind products to vulnerable households.
Public-utility, postal, or CBDC alternatives to bank accounts are a long way off and may not effectively safeguard high-risk households.
Expanding low-cost, no-risk bank accounts is a critical near-term policy option.
CBDC advocates tout its inclusiveness, but the digital divide is a profoundly exclusionary impediment to CBDC access for LMI, disabled, older, and rural households.
Centralized deposit-taking and payments via the Post Office and/or Fed pose challenges to personal privacy and even freedom of expression that, if not averted in initial design, could come to pose significant political and governance risk. Lack of private competition also presents discrimination risk based on pricing or other terms not subject to outside scrutiny.
If CBDC succeeds as some envision it, then lending will come either from the federal government – Big Brother problems of still more concern – or capital-markets sources outside the perimeter of safety-and-soundness and often also consumer-protection regulation and enforcement.
A CBDC in which the Fed acts as an open-source utility corrects for many current inclusion, governance, and intermediation obstacles to payment-system speed and efficiency.
