The takeaway: A strategy for selling the idea of CBDCs: Paying labor by the end of the day.
It is time for non-asset holding members of the labor class to look at ourselves as traders of time versus mere employees. The trader spends his or her day managing their financial and time capital converting one resource, i.e., time, currency, stocks, bonds, etc., into another resource that they can take home at the end of the day and feed their families.
For the wage earner who is waiting weeks between paychecks, meeting that day-to-day financial obligation to family is increasingly difficult. The data tells us that year-over-year rate of inflation is falling. The U.S. Bureau of Economic Analysis reports that between February 2022 and February 2023, personal consumption expenditures increased by five percent. However, consumers in February 2023 saw their expenditures increase by 0.3%, down from the January 2023 monthly increase of 0.6%.
Meanwhile, the U.S. Bureau of Labor Statistics reports that between March 2022 and March 2023, real hourly earnings decreased by 0.7%. On a monthly basis, while real hourly earnings increased by 0.2% in March 2023, the two preceding months saw monthly declines of 0.2% in each month.
The data tells a sanitized version of what we see and hear in the grocery store aisles and at the gas pump. The data tells a sanitized version of price reality. Our wages are not keeping up with the reality in our food or energy bills.
As a credit thirsty populace in a credit-driven political economy, Americans are watching the Federal Reserve tighten the spigot. Over the past thirteen or so months, the Board of Governors of the Federal Reserve System has been raising the interest paid on bank reserves and the discount window rate for banks seeking to borrow from the Fed. By increasing these rates, the Fed hopes to increase the cost of money by reducing the money supply. Banks seeing higher rates paid on the reserves that they hold at the Fed or in their vaults will have less incentive to lend to a populace that is seeing less wage growth.
By its estimates, the Board of Governors will like to see unemployment somewhere around 4.5% to 5%. Around this unemployment rate the Board expects to get closer to its mythical two percent annual inflation rate.
But as the non-asset owning wage earner sees the Fed turn off credit as a lifeline, what other sources of relief short of onerous payday loans can the wage earner turn to?
The wage earner should be able to turn to herself.
What if more wage earners were able to collect their wages at the end of the day? An article in Forbes magazine shares some interesting statistics on what is sometimes referred to as “streaming pay.” Eighty-three percent of U.S. workers believe they should have access to earned wages at the end of the day.
Eighty percent of workers would like to have their pay “streamed” into their bank accounts while 78% of workers said that free access to on-demand pay would make them loyal to an employer. In addition, 81% of workers would take a job with an employer offering access to earned wages.
Among the reasons for accessing streaming pay? Access to earned wages could mean having more readily available funds to take care of an unexpected expense. Given that a significant number of Americans cannot access $400 for an emergency, being able to access money you have already earned could help in that scenario where the worker is less reliant on payday loans, family, or friends.
Also, workers could take advantage of investment opportunities that would otherwise be missed due to a lack of cash on hand. The ability to access trading opportunities via mobile devices could be balanced with the opportunity to use mobile to access earned wages and transfer those wages to an investment in real time.
And this is where a central bank digital currency could provide an opportunity. Where employer and employee maintain accounts at the Federal Reserve and their monies are issued in CBDCs, using the central bank system’s FedNow service for instantaneous clearing and settlement, an employer could send earned wages to his employee by end of business. Given the suspicions surrounding FedNow and CBDCs as instruments of enhanced surveillance by the government, the Federal Reserve could use all the upside benefits it can muster to sell this technology to the public.
Social media has demonstrated that where Americans see a benefit to sharing their data and that benefit outweighs the cost of privacy, Americans will participate in a digital technology. And given the government’s need to validate its currency by making it available for use by as many Americans as possible, encouraging streaming pay is a policy I would expect the government to pursue.
27 April 2023
Fed Funds Futures ZQU3: 95.04
Effective federal funds rate: 4.83%
Fed funds target range: 4.75-5.00%
Discount window: 5.00%
Interest on reserve balances: 4.90%
Two-year Treasurys: 3.90%
Ten-year Treasurys: 3.43%
Prime rate: 8.00%
Sources: CME Group, Board of Governors-Federal Reserve System, U.S. Department of the Treasury.
The stresses of non-asset owning wage earners is often overlooked. I hope you learned from this insight. Your donation helps keep alternative views in the public space. Thank you for your support.