The casino chip metaphor was the first explanation of currency that I could actually understand despite reading quite a bit about fractional reserve banking. The facts are just too hard to believe! Tron's adventures are useful and entertaining especially introducing his free-wheeling life as part of the personality of cash which highlights things we will lose.
I have a question about the casino chip metaphor - where you say the chips cannot be used outside the casino. The chips themselves can be used to pay taxes which is (one) definition of currency. Doesn't this ability make them a type of state money? Thank you from a newbie.
Hi Lisa, I'm really glad that you're finding the metaphors useful! That said, metaphors do have limitations, and this is why the casino chip metaphor struggles to fully reveal the answer to your tax question. Let me explain the tax question for you:
1) There are two forms of layer 1 state money - the first form is cash, and the second form is digital reserves that only the banking sector has access to. Both of those forms can be used to pay tax, but we cannot directly control the second form (reserves)
2) This means, when you go to pay tax, you - theoretically - only have two options: you can either try hand over cash to the government, or you can try hand over 'digital casino chips' from your bank account
3) Most people do the latter (in fact, in many countries they kinda force you to use online transfers). This superficially makes it look like you're using digital bank chips to pay tax, but *you are not*
I'll try do a simple version of why, here
4) When you pay your tax online, you'll probably log on to your online bank account and make a transfer from your account to the account of the government
5) The government account often looks like it's a bank account, but in reality it is a special account at the Central Bank
6) When you make the transfer, the government is not receiving your digital casino chips. Rather, what you are doing is
- 6a) handing the chips back to your bank and
- 6b) telling your bank to transfer digital reserves to the government account at the central bank
7) Put differently, the digital casino chips get taken out of circulation (the bank takes them back from you, like the cashier at a casino), but rather than handing you cash, transfers layer 1 reserves to the account of the government at the central bank, on your behalf
8) In reality, then, you are *not using the chips to pay taxes* - you are relinquishing ownership of your chips, and instructing the bank to *pay your taxes with layer 1 digital reserves*. It's the reserves paying the tax, not the chips
I hope that makes basic sense - I'll try do a piece explaining all of this in more detail at some point!
The Tron metaphor is a creative way to teach people about something complex like this. Narratives are powerful because they’re easy for humans to perceive, and can be mentally mapped onto foreign / difficult concepts. Metaphors are bridges to new areas of knowledge.
Also, I’m glad you pointed out the issues with the seeming innocuousness of cashless convenience. It is a trojan horse that’s incredibly effective (who wouldn’t want more convenience in their busy overworked lives?)
Great read - especially having the Barclay's asset sheet decoded.
The more I read this, the more I feel democratic CBDCs aren't compatible with the fractional banking system. Unless there's real incentive to leave deposits in a bank account, wouldn't there just be a kind of run on the bank as people try to convert their bank deposits into CBDCs?
I'm still hoping to be persuaded further on your earlier point that the public faith in the currency relies on access to cash, except for a potential bank run which seems to have been mitigated by the government guaranteeing the banks.
Well this is why all the CBDC proposals all include some kind of measure to prevent what they call 'disintermediation', which is jargon for 'people choosing to use state-issued digital money rather than bank-issued digital money'. The measures include stuff like limiting how much CBDC could be held, and making the banks the gatekeepers to CBDC. I'll try build on this in Part 2 of my Zen and the Art of CBDC Analysis
The Tron metaphor offers a creative way to depict the transformation of physical cash into digital bank reserves, appealing especially to more technically-oriented perspectives. However, the complexity of the analogy may limit its accessibility and utility for everyday working class readers focused on more immediate concerns.
Critiques of an increasingly cashless society resonate strongly among progressives and sci-fi imaginers wary of consolidated corporate power and tech-led dystopias, but for financially comfortable middle class professionals and investors, cashless-ness feels inevitable if not actively beneficial, limiting any perceived urgency.
Concepts like bank-issued digital money feeling disconnected from tangible cash carry weight intellectually and in speculative fiction. Yet for many who rely on stable digital finance in daily life, the practical reliability of existing systems overrides many of the abstract reservations.
Warnings about corporate interests forcibly removing cash play to fears of authoritarian technocracy in both activism and sci-fi. However, those thriving in the current system may dismiss such scenarios as paranoia, underestimating threats to social justice.
Proposed solutions like CBDCs have radical appeal for progressives but seem unrealistic and unnecessary to upper middle class financial analysts invested in status quo stability. Their transformative potential inspires imagination but remains distant from most proximate concerns.
The article compellingly articulates technocratic threats to public oversight and real value from a progressive standpoint. However, its urgent call to action risks alienating those still served by prevailing systems, underestimating challenges of profoundly altering complex sociotechnical infrastructures.
Overall, the article excellently surfaces risks of cashless-ness and privatization, but requires wider accessibility, pragmatism and coalition-building to translate critique into action. It succeeds more as "consciousness-raising" than as a catalyst for change across social strata with conflicting interests and assumptions.
- agree with you on the point that many people don't see an immediate gain from making distinctions between different forms of digital money and cash. My job is to convince more and more people that these distinctions matter politically, and also actually in their personal lives
- Your fourth paragraph about concerns getting dismissed as paranoia is becoming especially true with the rise of conspiracy paradigms - many moderate centrist lefties are starting to associate critique of digital payments with right wing conspiracy thought. This is a constant problem I butt up against
My response: This piece represents a hugely appealing framing of very real technological threats to society in a way that conjures resistance and hope. The urgent tone feels justified and motivating given the risks illuminated. This is exactly the kind of writing needed to engage activists and other impassioned 'nerds' alike in the project of building a more just and democratic financial future. Kudos on a great read!
Brilliant! Could I ask about this quote from your Money in Orbit piece (also brilliant) - "I’ll be sketching out the ECB system in due course, which is unique in issuing a kind of ‘meta-state’ money".
Nice read. One thing missing is that in banking, and central banking CBDC proposals, we do not get to control the software, but the State forces banks to print us bank statements, and on demand too. While most blue collar workers might not have the time to check for fraud, we collectively have the means to help each other with this (a fraud happened to me, I accidentally wrote an extra "0" on my account no. at a new job, my first $3,000 cheque then went to a dude who took it and fled to Australia!) The bank was state owned bank, they were super helpful and apologetic, and my company re-paid me.
It's not direct control of the payments software, but if we cooperate to help each other, a few community experts can protect workers from the worst bank practices. Not that commercial banks regularly defraud the customer, they don't. So what is the true problem with banks running the payments software?
There is not a serious problem for democracy if the banks are well regulated. By far the more serious problem is in white collar crime. Which is an entirely different "layer" of money and politics. In your Tron metaphor they'd be outright cheaters who get away with cheating by bribing the software developers. The damage to society they cause is just immense, vastly exceeding most crime people get thrown in prison for, almost hard to calculate. Those with large bank balances can draw from them to escape white collar crimes, this is pervasive, horrendous, and a massive drain on civil society (see Jennifer Taub's book "Big Dirty Money".) The issues of "cashless" pale utterly into insignificance in comparison with lack of policing of white collar crime my friends.
Thanks for the comment Bijou. I'd say it is a true problem for democracy when a single oligopoly of players control one of the key means of survival - which in a capitalist system is monetary exchange.
Also, you're being a bit hyperbolic when you say corporate domination of the monetary system 'pales utterly into insignificance' when compared with corporate white collar crime. I mean, these are both serious issues
Yeah, I agree with you. The hyperbole was to make a point. White collar crime is a bigger drain on the economy than who runs the monetary system. I'll double on agreeing with you if we say one of the sources of lack of protection to the public from white collar crime is oligarch control of government. But we live in a mixed system, not a "capitalist" system per se. Under ideal capitalism there are no oligarchs. Actual existing capitalism on the other hand enjoys state life-support. 100% agree with you that having more democracy not less is a huge part of the solution to get out from under the yoke of capitalism+oligarchs.
On: "...true problem for democracy when a single oligopoly of players control one of the key means of survival" - that means it's not a problem *of* a democracy, since there is none. It's a problem *for gaining a* democracy.
Well, we can have a debate about 'ideal type' visions of capitalism and democracy versus actually existing capitalism and democracy, but those debates are kinda pointless to me ;)
He’s back folks.
Trying my best ;)
The casino chip metaphor was the first explanation of currency that I could actually understand despite reading quite a bit about fractional reserve banking. The facts are just too hard to believe! Tron's adventures are useful and entertaining especially introducing his free-wheeling life as part of the personality of cash which highlights things we will lose.
I have a question about the casino chip metaphor - where you say the chips cannot be used outside the casino. The chips themselves can be used to pay taxes which is (one) definition of currency. Doesn't this ability make them a type of state money? Thank you from a newbie.
Hi Lisa, I'm really glad that you're finding the metaphors useful! That said, metaphors do have limitations, and this is why the casino chip metaphor struggles to fully reveal the answer to your tax question. Let me explain the tax question for you:
1) There are two forms of layer 1 state money - the first form is cash, and the second form is digital reserves that only the banking sector has access to. Both of those forms can be used to pay tax, but we cannot directly control the second form (reserves)
2) This means, when you go to pay tax, you - theoretically - only have two options: you can either try hand over cash to the government, or you can try hand over 'digital casino chips' from your bank account
3) Most people do the latter (in fact, in many countries they kinda force you to use online transfers). This superficially makes it look like you're using digital bank chips to pay tax, but *you are not*
I'll try do a simple version of why, here
4) When you pay your tax online, you'll probably log on to your online bank account and make a transfer from your account to the account of the government
5) The government account often looks like it's a bank account, but in reality it is a special account at the Central Bank
6) When you make the transfer, the government is not receiving your digital casino chips. Rather, what you are doing is
- 6a) handing the chips back to your bank and
- 6b) telling your bank to transfer digital reserves to the government account at the central bank
7) Put differently, the digital casino chips get taken out of circulation (the bank takes them back from you, like the cashier at a casino), but rather than handing you cash, transfers layer 1 reserves to the account of the government at the central bank, on your behalf
8) In reality, then, you are *not using the chips to pay taxes* - you are relinquishing ownership of your chips, and instructing the bank to *pay your taxes with layer 1 digital reserves*. It's the reserves paying the tax, not the chips
I hope that makes basic sense - I'll try do a piece explaining all of this in more detail at some point!
The Tron metaphor is a creative way to teach people about something complex like this. Narratives are powerful because they’re easy for humans to perceive, and can be mentally mapped onto foreign / difficult concepts. Metaphors are bridges to new areas of knowledge.
Also, I’m glad you pointed out the issues with the seeming innocuousness of cashless convenience. It is a trojan horse that’s incredibly effective (who wouldn’t want more convenience in their busy overworked lives?)
I'm glad you like it Tina! Thanks for the support
Great read - especially having the Barclay's asset sheet decoded.
The more I read this, the more I feel democratic CBDCs aren't compatible with the fractional banking system. Unless there's real incentive to leave deposits in a bank account, wouldn't there just be a kind of run on the bank as people try to convert their bank deposits into CBDCs?
I'm still hoping to be persuaded further on your earlier point that the public faith in the currency relies on access to cash, except for a potential bank run which seems to have been mitigated by the government guaranteeing the banks.
Well this is why all the CBDC proposals all include some kind of measure to prevent what they call 'disintermediation', which is jargon for 'people choosing to use state-issued digital money rather than bank-issued digital money'. The measures include stuff like limiting how much CBDC could be held, and making the banks the gatekeepers to CBDC. I'll try build on this in Part 2 of my Zen and the Art of CBDC Analysis
Absolutely love your metaphors. Trying to explain this stuff is so hard and the traditional language is deliberately obfuscating.
I love the casino chip metaphor and thanks for this one.
Keep them coming - you’re making it easier for the rest of us to penetrate this labyrinth
Thanks so much for the support Howard - much appreciated! Glad you're finding these explorations useful
A more reasoned response:
The Tron metaphor offers a creative way to depict the transformation of physical cash into digital bank reserves, appealing especially to more technically-oriented perspectives. However, the complexity of the analogy may limit its accessibility and utility for everyday working class readers focused on more immediate concerns.
Critiques of an increasingly cashless society resonate strongly among progressives and sci-fi imaginers wary of consolidated corporate power and tech-led dystopias, but for financially comfortable middle class professionals and investors, cashless-ness feels inevitable if not actively beneficial, limiting any perceived urgency.
Concepts like bank-issued digital money feeling disconnected from tangible cash carry weight intellectually and in speculative fiction. Yet for many who rely on stable digital finance in daily life, the practical reliability of existing systems overrides many of the abstract reservations.
Warnings about corporate interests forcibly removing cash play to fears of authoritarian technocracy in both activism and sci-fi. However, those thriving in the current system may dismiss such scenarios as paranoia, underestimating threats to social justice.
Proposed solutions like CBDCs have radical appeal for progressives but seem unrealistic and unnecessary to upper middle class financial analysts invested in status quo stability. Their transformative potential inspires imagination but remains distant from most proximate concerns.
The article compellingly articulates technocratic threats to public oversight and real value from a progressive standpoint. However, its urgent call to action risks alienating those still served by prevailing systems, underestimating challenges of profoundly altering complex sociotechnical infrastructures.
Overall, the article excellently surfaces risks of cashless-ness and privatization, but requires wider accessibility, pragmatism and coalition-building to translate critique into action. It succeeds more as "consciousness-raising" than as a catalyst for change across social strata with conflicting interests and assumptions.
Thanks for these insights Darren, much appreciated:
- for the middle class readers, I feel my metaphors around cash being the 'bicycle of payments' that needs to share a balance of power with the 'Uber of payments' can be useful (https://brettscott.substack.com/p/the-luddites-guide-to-defending-physical-cash)
- agree with you on the point that many people don't see an immediate gain from making distinctions between different forms of digital money and cash. My job is to convince more and more people that these distinctions matter politically, and also actually in their personal lives
- Your fourth paragraph about concerns getting dismissed as paranoia is becoming especially true with the rise of conspiracy paradigms - many moderate centrist lefties are starting to associate critique of digital payments with right wing conspiracy thought. This is a constant problem I butt up against
- agree on CBDC (I go into some of those political dynamics here https://brettscott.substack.com/p/cbdc-analysis)
Thanks for the feedback!
My response: This piece represents a hugely appealing framing of very real technological threats to society in a way that conjures resistance and hope. The urgent tone feels justified and motivating given the risks illuminated. This is exactly the kind of writing needed to engage activists and other impassioned 'nerds' alike in the project of building a more just and democratic financial future. Kudos on a great read!
Thanks so much Darren!
Brilliant! Could I ask about this quote from your Money in Orbit piece (also brilliant) - "I’ll be sketching out the ECB system in due course, which is unique in issuing a kind of ‘meta-state’ money".
Did that get done?
It's on the list - but my list of pieces to do is long and I go through them at my own pace. Really glad you like the piece
Nice read. One thing missing is that in banking, and central banking CBDC proposals, we do not get to control the software, but the State forces banks to print us bank statements, and on demand too. While most blue collar workers might not have the time to check for fraud, we collectively have the means to help each other with this (a fraud happened to me, I accidentally wrote an extra "0" on my account no. at a new job, my first $3,000 cheque then went to a dude who took it and fled to Australia!) The bank was state owned bank, they were super helpful and apologetic, and my company re-paid me.
It's not direct control of the payments software, but if we cooperate to help each other, a few community experts can protect workers from the worst bank practices. Not that commercial banks regularly defraud the customer, they don't. So what is the true problem with banks running the payments software?
There is not a serious problem for democracy if the banks are well regulated. By far the more serious problem is in white collar crime. Which is an entirely different "layer" of money and politics. In your Tron metaphor they'd be outright cheaters who get away with cheating by bribing the software developers. The damage to society they cause is just immense, vastly exceeding most crime people get thrown in prison for, almost hard to calculate. Those with large bank balances can draw from them to escape white collar crimes, this is pervasive, horrendous, and a massive drain on civil society (see Jennifer Taub's book "Big Dirty Money".) The issues of "cashless" pale utterly into insignificance in comparison with lack of policing of white collar crime my friends.
Thanks for the comment Bijou. I'd say it is a true problem for democracy when a single oligopoly of players control one of the key means of survival - which in a capitalist system is monetary exchange.
Also, you're being a bit hyperbolic when you say corporate domination of the monetary system 'pales utterly into insignificance' when compared with corporate white collar crime. I mean, these are both serious issues
Yeah, I agree with you. The hyperbole was to make a point. White collar crime is a bigger drain on the economy than who runs the monetary system. I'll double on agreeing with you if we say one of the sources of lack of protection to the public from white collar crime is oligarch control of government. But we live in a mixed system, not a "capitalist" system per se. Under ideal capitalism there are no oligarchs. Actual existing capitalism on the other hand enjoys state life-support. 100% agree with you that having more democracy not less is a huge part of the solution to get out from under the yoke of capitalism+oligarchs.
On: "...true problem for democracy when a single oligopoly of players control one of the key means of survival" - that means it's not a problem *of* a democracy, since there is none. It's a problem *for gaining a* democracy.
Well, we can have a debate about 'ideal type' visions of capitalism and democracy versus actually existing capitalism and democracy, but those debates are kinda pointless to me ;)