Central Banks, Technology, and the End of Democracy

 

Fonte: Banco Central do Brasil                                             

Paradoxically, the disbelief in Central Banks during the financial crisis of 2007-2008 led these institutions to seek independence in search of more powers and found in information technology the adequate path for this purpose which, for many researchers, may be the end of democracy.

To law professor, Lev Menand, from Columbia Law School, in the United States, the American Central Bank, the so-called Federal Reserve (Fed) in the last 15 years has been putting the project of the United States at risk. With intervention in public policies and economic life, the Fed encourages the financial market to the detriment of the productive economy, increasing inequalities and accentuating the wealth gap.

Finally, the Fed is now the most powerful institution in the United States, but in need of deep reforms. Professor Lev Menand, an economist and former adviser to the Secretary of the US Treasury, points to the risks for American democracy, saying that “without economic and monetary stability, democracy cannot survive”. The Fed, after more than a century, appears not to have achieved this.

Economists' justifications for central bank independence have been challenged around the world and, for many political scientists, we are facing a terrible power maximization. Consequently, as already mentioned, much of the literature on central bank independence has been concerned with questions about how to design and implement the effective separation of monetary policy from other government policies.

The independence of the Central Bank in Brazil is surreptitiously threatening Brazilian democracy in a way never seen before, maintaining very high and unjustified interest rates, which compromise the country's growth, increasing hunger, social inequalities, and the impoverishment of the population.

In recent days, President Lula has been criticizing high-interest rates and begging, with no response, for an explanation of why the country has the highest interest rates in the world. The independence of the Central Bank of Brazil took place in 2022, in an extreme right-wing government, when the priority was to favor the financial market, with the current president of the Central Bank being appointed in the Bolsonaro administration.

This president has clearly demonstrated that his power, even without being elected, is superior to that of the President of the Republic when he says he will see what can be done for the country. It is like he was going to hear Faria Lima first (São Paulo Avenue where the financial elite decides everything in this country) and not President Lula's complaints about high-interest rates.

It is thus clearly demonstrated that the Central Bank privileges the financial market. In this case, high interest rates make credit more expensive for both individuals and companies. The result of this is the reduction of economic growth since neither family has money to buy nor companies to invest.

It is good to remember that one of the hallmarks of the previous government was also the spread of hatred, violence, misinformation, disinformation, and fake news. Since there is no explanation for having an interest rate of 13.75%, is this not disinformation being disseminated to become the truth?

Now, the great technological innovation in the financial systems of the world is the use of digital currency, called CBDC (Central Bank Digital Currency) which, for some researchers, maybe the end of democracy in the world, when trying to build a monetary highway to hell. In this case, technology, political power, and social justice could lead us to unpleasant experiences with this technological innovation. CBDC has the potential to trigger unwanted and unexpected social consequences for all of us, through punishments that could be severe.

The financial system has always been one of the first to adopt information technologies (fintech, blockchain, cryptocurrencies), which often benefit their inventors more than their customers. In the case of CBDC, there will be a concentration of power within the government and a reduction of power in private sector institutions.

In advanced economies, a legal framework for CBDC is still in progress, unlike in Brazil where the digital currency is about to be implemented. Brazil has always been chosen by international information technology companies to try out their technological gadgets.

According to a recent report by the House of Lords, in the UK, while it appears that there are no significant advantages for the UK to be an early adopter of CBDC, it is recognized that technological developments and choices in other countries may improve the case for CBDC in the UK in the future.

Finally, the implementation of this technology cannot happen without a consistent legal framework and ethical, social, and environmental guidelines, not least because the relationship between digital currencies, democracy, public policies, public governance, and the phenomenon of power maximization is still unknown.

In Brazil, at the moment, the experience between monetary policy and economic growth is bad. Furthermore, digital dictatorship, surveillance, attacks on human rights, and invasion of privacy have returned to the pages of newspapers in recent days. When the risks of technology reach these dimensions, ruining democracy, it becomes difficult to talk about its advantages.