BIS publishes screed about trust in fiat

[pmbug]

They must be worried about keeping the con(fidence) game going (bold emphasis is mine):

...
The short answer (to be developed further below) is that a strong capital position is neither necessary nor sufficient for preserving trust in money. A strong capital position of the central bank in the conventional accounting sense is not an absolute prerequisite for preserving trust in money. This is evidenced by central banks that have operated effectively with negative equity. Still, these central banks have all benefited from support by fiscal authorities with sustainable debt levels. Conversely, there have been instances where trust in money eroded due to concerns about fiscal sustainability, despite central banks having positive capital. This suggests that the sustainability of public finances plays a critical role.

Instead of the central bank’s capital position, our paper highlights the importance of a related set of issues as key for the preservation of trust in money. The pivotal economic mechanism that we highlight is the portfolio decision of private holders of central bank money. When private holders have access to alternative forms of money and other financial claims, fiat money needs to command unquestioned trust on the part of the private holders. While network effects will preserve support from private financial entities, erosion of trust could shift the economy closer to potential “tipping points” when holders abandon domestic money in favor of alternatives, whether they are metal coins in the 1700s or other reserve fiat currencies or crypto stablecoins in the modern era. It is in this context of the portfolio choice of private holders of central bank money that the capital position of the central bank enters into the analysis. This is because a weak or negative equity position of the central bank will have a bearing on how the tipping point of the switch to an alternative currency is determined. The outward symptom of such a tipping point would be the sudden collapse of the exchange rate during a currency crisis. The collapse of the currency can be seen as the point where there is a sudden loss of trust in money.
...

19 page PDF:

https://www.bis.org/publ/bppdf/bispap146.pdf

Overview page:

Central bank capital and trust in money: lessons from history for the digital age

Historically, central banks have at times operated successfully with negative equity. This indicates that a negative equity position of the central bank can be fully consistent with preserving trust in money.

www.bis.org

I used to think that the War or Crypto was just about paving the way for new world order of CBDCs, but it seems clear that they are getting worried about the system imploding.

I have long argued with defenders of the fiat monetary system that if it is so great, what is their objection to letting gold compete on a level playing field? They never have an answer. Thinking on this too much inexorably leads one to the same conclusion as the BIS highlights above - fiat's warts cannot compete with honest money.

 

[Goldhedge]

I'd trust fiat if it were US Notes... remove the BIS and non Federal Reserve.

 

[Voodoo]

Think you are spot on. When they start doing things like this its time to run for the hills.