Digital money & Catholic social teaching – The essentials ignored

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The impending digital currency will come. It’s as certain as the collection plate in church. A topic that the Roman Catholic Church has also taken up. Cryptocurrencies correspond to the principles of Catholic social teaching, according to a voice within the church’s orbit. A collection of supposed advantages of digital currencies and the “loud” silence about the fundamental problems.

Slowly from cash to digital

In recent weeks, there has been increasing talk about cash and digital money. Consumers are increasingly turning to notes and coins, while those who do are turning to cashless payment systems, according to the general consensus. One could simply argue that this is a guided transition by lawmakers, as the cash limit has been successively lowered in recent years. The EU directive currently specifies an upper limit of €10,000, while individual EU countries have set this limit significantly lower at national levels. For example, Spain has a limit of €999.99. Above €1,000, the origin of the money must be verifiable, i.e., electronically.

For years, numerous central banks around the world have been “tinkering” with a digital currency. The European Central Bank (ECB) is one of them. The launch of this digital payment unit appears imminent. Initially, it will exist alongside cash, and then, I bet!, it will eventually replace cash entirely. Cashless payments, after all, have “numerous advantages.”

The so-called cryptocurrencies that have been in circulation for many years operate purely digitally. The best-known representative of this category is “Bitcoin.” It’s not really known who brought it into being. There’s talk of an ominous Japanese man. But that’s probably just to give Bitcoin’s origins a “human face.” It will likely remain a mystery who actually brought this crypto currency into being.

Digital currencies also incorporate blockchain technology. This allows the historical history of this payment unit to be stored within the digital currency itself and can be accessed for analysis. This makes it possible to determine when this unit was put into circulation, who used it for what, to whom it was passed on, what exactly they bought, when, and from whom, etc. All of this information is contained within this payment unit, along with the numerical “value.”

Not immune to abuse

This would mean that official digital units issued by central banks should have some advantage over Bitcoin, as this popular cryptocurrency still clearly promises a certain degree of anonymity. One example is the coercion or blackmail emails that are repeatedly circulating, claiming that control of the home PC has been taken over and the owner has been observed engaging in “immoral activities.” This was recorded on camera. If a certain amount is paid, the blackmailer will remain silent.

If payment is not made, the entire circle of acquaintances, known through the supposed control of the PC, will be informed of these actions, including employers and colleagues. If you send out such an email 10,000 times, there are certainly a handful who will comply with this payment request. What’s interesting, however, is that the payment is supposed to be made to a Bitcoin account. And yes, the Bitcoin accounts are publicly accessible, and in fact, they are filled with a not inconsiderable amount. But the owners of these accounts are anonymous, so the criminals feel safe.

In the case of an official digital currency, the question arises as to whether this anonymity is also guaranteed, or whether only persons or groups of persons with a “legitimate interest” can collect, evaluate, and intervene accordingly.

Bitcoin & Co. and Catholic social teaching

The principle of digital currency, still in the form of a crypto unit, is also a topic of discussion in the Roman Catholic Church. And, not surprisingly, it is viewed as a promising and positive financial instrument. This is where Catholic social teaching comes into play for the supporting argument. In light of this, Bitcoin could ensure better “social justice” because its many “advantages” over traditional currencies are compelling. Catholic News Agency (CNA) published an article in which Bitcoin is described as such a means of payment, which is quite advantageous from a “Christian perspective.”

This article correctly states that the current monetary system consists of “money out of nothing,” i.e., the “fiat monetary system.” Central banks, therefore, have the task of ensuring the stability of the “value of money.” However, the article fails to mention that it is the “ordinary” banks that create money out of nothing by granting loans (lending is NOT borrowing money!). However, the German Bundesbank provided insightful information on this in its April 2017 Monthly Report.

Isolated (supposed) advantages

Inflation is therefore a constant issue that can also lead to social injustice. This is not the case with Bitcoin, for example. This cryptocurrency is limited to 21 million units and cannot be multiplied at will, like what is commonly referred to as money today. “Soft fiat money” is out of the question with Bitcoin.

A currency that does not lose value due to inflation is closer to the biblical idea of “just weights and scales,” according to the CNA article. Combined with advanced technological innovations, products would become cheaper for consumers and thus develop deflationary tendencies, it concludes. In an environment of a limited money supply, this would benefit all people and thus also the “common good.”

A question of ethics

The Roman Catholic Church also considers inflation a “highly ethical issue.” This phenomenon primarily harms poorer people, savers, and families, while financial market participants and states benefit from it. Therefore, Bitcoin is capable of promoting social solidarity.

This article transitions seamlessly from Bitcoin to the term “digital money.” The idea of “hard digital money” offers “a challenging discourse” in light of the guiding principles of Catholic social teaching. This applies particularly to the introduction of central bank digital currencies, as these represent the counterpart to Bitcoin. Therefore, it is absolutely necessary to incorporate the principles of Catholic social teaching into the ongoing discourse on these developments.

The real dilemma concealed

A fundamental problem, in addition to the “fiat money” system, has not been mentioned at all. This is the interest charged on loans granted or interest received on savings. After all, it is loans that create money. The money in circulation is therefore based on loans, the borrower’s debt recognized through a loan agreement. The borrower is then forced to pay the required interest amount in addition to the recognized debt of the loan agreement.

This is a claim that cannot be covered by the money supply in circulation. Thus, raising interest payments always involves withdrawing further funds from the existing money supply, which in turn results in other borrowers no longer being able to pay their debts. This required additional interest money is simply not available. In the confusion of the masses, this effect becomes invisible, but is based on purely mathematical logic..

Viewed from the other side, interest payments on savings are withdrawn from the available money supply. This, in turn, is then no longer available to the borrower, and certainly not for the interest charged in addition to the loan amount. It is in the nature of things that individual borrowers, and not a small number of them, have to fall by the wayside in this literal battle to steal money from each other. As always, this gets lost in the mass of things and is therefore not apparent. But the principle remains that even a single euro in interest on savings contributes to someone, somewhere, being unable to pay off their loan, even with the greatest investment of their labor and life.

A simplified representation

To make it clearer, here’s a simplification of the principle: 10 people want to take out a loan from a bank, each for €10,000. The bank lends each person a total of €100,000. Only with this process is money essentially brought into this world (“created”) and thus only from this point on is it in circulation. All borrowers have acknowledged their respective debt and are obligated to pay money to the bank. They each earn this through work, for example, through (real) value creation during their lifetime.

Now, however, the bank is charging 5% interest, which amounts to a total of €10,500 from each individual borrower. This adds up to €105,000 from all borrowers. But there are only €100,000 in circulation. So where will the additional €5,000 come from? If nine borrowers manage to collect their (acknowledged) debt plus interest, then only €5,500 remains in general circulation. This makes it impossible for the tenth borrower to pay off the debt. The tenth borrower stumbles and thus loses the value created with the loan, as well as whatever else they earned while “struggling for money.” The borrower is ruined.

The only remaining possibility was for an eleventh, another, and yet more borrower to come along to increase the available money supply again. But inevitably, one or more borrowers will always default on their debt.

Receiving interest on deposits through savings deducts a portion of this available money supply. The result is that interest on deposits (returns) contribute to making life more difficult for others and causing them to stumble.

It tears society apart

The result is well known if the loan cannot be repaid. The bank’s first question is, “What did you buy with the loan?” Lending money out of nothing, so to speak, but being able to reap real, tangible added value in the event of a loan default. “Social justice” according to Catholic social teaching?

This principle, which, by its very nature, turns people into direct competitors during their participation in society, inevitably leads to the disruption of (peaceful) society and also inevitably promotes the egoism that is absolutely necessary for its very existence. Does this also correspond to the principles of Catholic social teaching?

Whether a digital currency, which will almost certainly be introduced, will change this remains to be seen. The visions describe something like “owning nothing, yet still being happy.” But if the standards of Catholic social teaching are to apply, it’s surprising that these peculiarities of the existing monetary system are not addressed at all.

In view of this, the statement in Revelation 18:3 immediately comes to mind, which describes the immeasurable wealth of Babylon, to which the merchants of the earth cling like small mammals:
“…and the merchants of the earth are waxed rich through the abundance of her delicacies.“

A question of conscience

It is certainly a question of one’s own conscience, when one is aware of this monetary system, which has sprung from a truly diabolical spirit, how far one would want to lean out of the window in order to make a profit from it, to increase one’s account balance, to expand financial inflows, from sources for which one does not even have to lift a finger, let alone compare it with any added value.

Another important question was how strong, or at all, one’s trust in God’s promises to His faithful followers is? “I find words of praise and praise for God, but only as long as my financial situation is prosperous and my sources of income are flowing”? Here, the book of Job, and especially Isaiah 33:14-16, is suggested:
“The sinners in Zion are afraid; fearfulness hath surprised the hypocrites. Who among us shall dwell with the devouring fire? who among us shall dwell with everlasting burnings? He that walketh righteously, and speaketh uprightly; he that despiseth the gain of oppressions, that shaketh his hands from holding of bribes, that stoppeth his ears from hearing of blood, and shutteth his eyes from seeing evil; He shall dwell on high: his place of defence shall be the munitions of rocks: bread shall be given him; his waters shall be sure.“

The decisive factor, and this has probably been the case in all ages, is the nasty confusion between “needing something” and “wanting something.” This is often combined with the desired recognition or even admiration from others. In other words, the absolutely transient and thus completely irrelevant.

Bible verses from King James Version (1611)