In order that the introduction of MyRBA accounts by the RBA, for the general public and non-banks, preserves as much choice as possible another new account will be introduced by the RBA at the same time. This is the CBI account (Customer Bank Investment – Full reserve – account) which was discussed in the Banker Watch – Equipment for Bootcamp. This post provides some more information about the role of the CBI account and how the CBI accounts will work.
Currently only banks are permitted to operate 100% risk free deposit accounts at the RBA. This special privilege forms the basis of the privatisation of the public monetary system as it forces the general public and non-banks into business relationships with private banks. The deposit accounts at the RBA operated by the banks are called Exchange Settlement (ES accounts) or reserve accounts.
On the day that the general public are permitted to start opening and operating MyRBA deposit accounts at the RBA, a few other changes to the public monetary system will be introduced, including the creation of a CBI deposit account at the RBA for each of the banks.
Customer Bank Investment (Full reserve) account “CBI account”
The purpose of the CBI account is straight forward. It ensures that all deposits held at the private banks are now fully reserved at the RBA.
If a private bank fails or goes broke NONE of their customers will lose a cent because their account balance is now fully reserved at the RBA. When a private bank fails the customer will be allowed to withdraw the full amount of their account balance, from the CBI account of their bank at the RBA, on providing proof of the balance of their account to the RBA.
Perfect safety without the complicated / expensive mess that is the current government partial guarantee of deposits at private banks.
But why reserve them? Weren’t all these “deposits” generated out of thin air by the banks
While it is correct that many of the deposits at the private banks are nothing more than “out of thin air” creations of the private banks, that is just how the privatised public money system worked. It would be unfair to all those people who have used the privatised public monetary system to date, if the deposits as at the date of the introduction of the new MyRBA model are not protected. Keep in mind that under the MyRBA plan the banks lose their power to create new deposits out of thin air when the MyRBA model is introduced so there is no risk of the banks creating additional deposits “out of thin air” after the MyRBA model is introduced.
What happens to the existing Bank Exchange Settlement / reserves accounts?
There are a few changes to the Bank Exchange Settlement accounts. They will now be called the banks MyRBA account, e.g. Westpac MyRBA account. In effect they are now truly the bank’s deposit account at the RBA and the banks will use their MyRBA account for transactions just like every member of the public and non bank who opens and operates a MyRBA account.
Unlike the old Exchange Settlement account the Bank’s MyRBA account will not be used to settle transactions between customer deposit accounts as those transactions will now be settled using the Westpac CBI account.
What about the MyRBA accounts of the general public and non banks?
As the general public or non-banks open new MyRBA accounts at the RBA they will be able to deposit notes and coins, they may have hidden in the garden, and they will also be able to transfer some or all of the deposits they currently have at the private banks to their MyRBA account.
No one will be forced to open a MyRBA account. It will be entirely up to them.
But if they do, they will be able to transfer some of the balances in their deposit accounts at the private banks to their new MyRBA account.
So what will these accounts look like on the RBA balance sheet
The day before the new MyRBA model commences (say 1 January 2021) the RBA’s balance sheet might look like this.
Using Westpac as an example:
DR Westpac ES account $10 billion
At 9.00 am on the day that the new MyRBA model commences, the RBA’s balance sheet may look like this (assuming that Wespac customers have a total of $500 billion in their accounts at Westpac).
CR Westpac MyRBA Account (old ES account) $10 billion
CR Westpac – CBI Account $500 billion
CR MyRBA accounts of Westpac customers $0 billion
The reason that the total balances of the MyRBA accounts of Westpac customers is zero is because it is still 9.00 am and the excited folk eager to operate their MyRBA accounts are still waiting patiently outside the doors of the RBA in Martin Place Sydney or at Australia Post agencies of the RBA or sitting at their keyboards ready to complete a transfer transaction.
At 5.00 pm on 1 January 2021 the RBA balance sheet might look a bit like this if by the end of the day 10,000 customers of Westpac (general public and organisations) have opened MyRBA accounts and have transferred on average $100,000 into their MyRBA accounts (10,000 * $100,000 equals $1 billion) from their Westpac accounts.
CR Westpac MyRBA Account (old ES account) $10 billion
CR Westpac – CBI Account $499 billion
CR MyRBA accounts of Westpac customers $1 billion
And clearly despite the inevitable hysterical campaigns, by the bank shills and their pet economists in the lead up to 1 January 2021, the world will not have ended.
It is likely that over the following months more people and organisations will open MyRBA accounts and transfer or deposit amounts into their account. Perhaps a reasonable expectation is that no more than 20% of deposits ($100 billion) will be moved into MyRBA accounts.
OMG Weimar !!!! Where did the CBI account balance come from?
In the example above the Westpac CBI account started the day with $500 billion !!!!.
Holy smoke did Governor Phil and the Assistant Governors turn the money printing machines up to 11 over night? Did they scoff bags of Peruvian Marching powder to keep the presses going? Will a potato cost $4 million dollars by lunch time?
No, No and No.
All that happened was that the following double entry accounting record was entered in the RBA accounts.
CR Westpac – CBI Account $500 billion
DR Australian Public Money $500 billion
Keep in mind that all this entry does is fully reserve all of the bank deposits that already exist in the private bank accounts. Yes this means that the Central Bank balance sheet is much larger but that does not of itself mean anything. It is just an accounting entry.
Importantly as of 9.00 am on the day that MyRBA commences, the banks have lost their power to create money out of thin air / aka new deposits when they extend credit to some property speculator punting on their 5th investment property.
So the good news is that we have now permanently left the private bank money printing for property punting mates era behind us.
So why bother with MyRBA if we are going to fully reserve the old bank “deposit” accounts?
That is a good question and the answer is straight forward.
The RBA is a public owned bank and it is the foundation of the Australian public monetary system. The general public are already allowed to use its liabilities in the form of notes and coins. They MUST be allowed to use liabilities of the RBA in the form of operating a MyRBA deposit account at the RBA. It is a farce that the banks have managed to get away with having a monopoly over RBA deposit accounts for as long as they have.
It is bizarre and anti-competitive, that one particular type of private organisation (a bank) is given a monopoly over the operation of deposit accounts at the RBA, as in effect this means that any member of the general public or a non-bank organisation that wishes to enjoy the convenience, safety and security of using an account (rather than bags of notes and coins) to complete transactions is FORCED to enter into a business relationship with a private bank.
It is a relic of the horse and buggy era, is economically irrational and involves a massive public subsidy and protection of the banking industry.
So the important question is really why bother persisting with ‘deposit’ accounts at private banks like Westpac if they are fully reserved on the RBA balance sheet?
Another good question and the answer again is simple.
Some people have reservations about a public institution like the RBA having a record of all of their financial transactions and this will be the case when someone uses their MyRBA account for completing routine daily transactions. In theory the RBA will have a record of your purchase of that log splitter at Aldi last month if you used your MyRBA account to complete the transaction.
Now some might argue that private banks are much more interested in mining the transaction data from the your bank accounts and credit cards as they are keen to sell you a bunch of profitable debt products and knowing what you spend your money on is very helpful to that exercise. As the RBA does not peddle debt products and other services and is simply providing a utility public money service it is more likely that the care factor of the RBA cardigan wearers about your specific spending patterns will be close to zero.
Note: The Australian Bureau of Statistics may find anonymised transaction data useful for analysis but they have been doing that for years.
It really comes down to who you distrust more. Bonus hunting bankers who can smell profits in your private data or public servants who are more interested in monitoring whether it is time to go home or when the next rostered day off opportunity arises.
And if you are worried about the ATO or the police snooping around, keep in mind they can already access every bit of information that the private banks have stored about your preferences for unicorn onesies. So you had better keep using bitcoin, gold nuggets or shotgun shells for those transactions.
Let a hundred flowers bloom and let the public decide whether they want to use a MyRBA account, an account at a private banks or both or neither.
The Westpac CBI account is probably best thought of as a massive pooled MyRBA account. Whose balance equals the balances of the all the MyRBA accounts that Westpac customers could open if they wanted to.
The RBA will only be notified by Westpac of the changes to the overall balance of the CBI account. The RBA will receive no other information about the transactions. In many situations, for example transactions between Westpac customers, the RBA will not need to be notified at all as the CBI balance is not affected by internal account transfers between Westpac customers.
DR Westpac Customer A (buying car from Customer B) $10,000
CR Westpac Customer B (Selling car to Customer A) $10,000
The above transactions will not involve any change to the balance of the Westpac CBI account at the RBA and accordingly no notification of the transaction (or that Customer B sold Customer A a car) to the RBA will be necessary.
Naturally if this car selling took place between two MyRBA accounts, the RBA would have a record of the transaction….. though they are unlikely to give a hoot.
DR MyRBA Customer A $10,000
CR MyRBA Customer B $10,000
What will it cost?
Keep in mind that the RBA will pay NO interest on the balances of CBI accounts, MyRBA accounts and Bank MyRBA accounts (old ES accounts)
The reason that the RBA will pay no interest is very simple. The RBA will not be making loans so will not be earning any income with which to pay interest.
Also keep in mind that the private banks will be unable to pay interest on the customer accounts that are now fully reserved at the RBA because in order for the private bank to get control of the contents of the CBI account (in order to make a loan) they must first persuade a customer to transfer some of the CBI account balance (corresponding to their Westpac account balance) to the bank’s MyRBA account.
There will be no charges associated with reasonable use of the MyRBA account. So while you will not be paid any interest you will not pay any account keeping or transaction fees either. The government will fund the provision of MyRBA services by the RBA just like any other fundamental public utility service provided by government.
Because allowing the public a choice to continue to use a bank account rather than or alongside a MyRBA account is important, it is probably appropriate that the government provides the private banks with some contribution towards the cost of providing the basic fully reserved account that corresponds to the MyRBA service.
What about the fancy stuff like ATM, reward points and international access?
It is possible that the private banks will get off their backsides when MyRBA is introduced and offer their customers a range of additional services for a fee (per month or per transaction).
For example: the RBA might not be interested in providing access to MyRBA accounts via international ATM’s. To gain access to international payments networks you may need to operate an account at a private bank and pay for these “fancy” services.
People are free to choose between a MyRBA account in their own name or instead keeping using their old bank account (which is reserved by the CBI account ..effectively a consolidated MyRBA account).
The CBI account is an important part of the introduction of MyRBA accounts at the RBA as it provides the ability to offer MyRBA accounts to those who want them while offering a similar MyRBA service to those folk who trust bonus chasing bankers more than sleepy public servants equipped with deep state secret handshakes.
It involves making a single accounting entry on the RBA balance sheet.
When the CBI account is established the power of banks to “make money for mates to punt on asset prices” will cease.
The operation of the CBI account is straight forward and will not be complicated to implement.
Like the MyRBA accounts, the introduction of the CBI account will allow for much clearer and transparent distinctions to be drawn between decisions by the public and organisations to
- Save without risk
- Invest for reward
Categories: Banking Royal Commission, MyRBA
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Terrific notion and well done on the thought leadership. myRBA is officially yours to coin. Nationalisation of the banks seems a bit like a commies wet dream, but is OK to a centrist like me all things considering. Issues ahead?
1) Vested interests, including every Australian that relies on big bank dividends
2) Vested interests (had to say it again just to cover the rest of the rentier value chain)
3) Will this mean we can easily adopt a federal cryptocurrency? (press here to open the can of worms)
4) Who polices the unpoliceable? RBA is unencumbered by the voting proletariat
5) Australia generally needs an existing base case to refer to – anything like this done before?
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A couple of notes on your questions.
This is definitely not about nationalisation of the banks. There is no reason for the government to be running a bunch of lenders and stuffing up a gazillion lending decisions. After MyRBA is introduced all the banks will be free to continue as lenders. They will just lose their license to create money.
What this is about is ensuring that public money is simply liabilities on a central bank balance sheet in the form of notes, coins or central bank deposits with the general public and non-banks free to use them. At best it might be described as reclaiming the public utility that is public money from effective privatisation.
It is not even about a monetary monopoly as I fully support letting one hundred monetary flowers bloom. If people don’t want to use central bank liabilities (notes, coins or central bank deposit accounts) they can use whatever they want. Bitcoins, cyber currencies, foreign currencies or or any other type of private currencies. Sure they will need to find someone to accept them (and the government will not because it wants to use the public money) but plenty of businesses are already happy to accept cyber currencies or foreign exchange. The more that do so the merrier the world will be.
Every political community is perfectly entitled to establish a public utility called public money that exists on a central bank balance sheet.
What I object to is our mutant model where the central bank balance sheet has been hijacked to support the privatised public money created by one privileged class of organisations. Whatever practical reasons there may have been a hundred years ago for adopting this model the evidence is in and it is time to ditch it.
1. Sure banks and their shareholders may not like losing their special “parasites on the body politic” status but is that an excuse for denying every Australian and non-bank the right to operate a MyRBA account? Everyone is perfectly free to choose to continue to operate a fully reserved deposit account at their preferred private bank or to transfer some of those account balances into the custody of their preferred private bank and take a chance on their lending talents.
2. Other rent seekers. Again what is the justification for denying every Australian and non-bank the right to operate a MyRBA account. There is nothing about MyRBA that prevents a government from looking after its mates but they will have to do so explicitly rather than having the favours baked into the monetary system.
3. A federal crypto currency? Depends what you mean by that. The accounts of the RBA including the MyRBA accounts will be effectively a big block chain. If you mean a digital coin or digital note that is mobile and can be buried under a lemon tree or transmitted to someone independently of the central bank balance sheet, why not. Though I appreciate that these days anyone who wants to use cash is considered a likely enemy of the state (in truth an enemy of privatised public money aka bank credit)
4. Who regulates the RBA? The government just as it regulates everyone else. Keep in mind that everyone watches the RBA right now and the metrics for measuring its performance are not complicated. Also keep in mind that the RBA in the era of MyRBA will be exceedingly boring. No grand lever pulling. All it will be doing it administering a bunch of notes, coins and deposit accounts. It will probably also give the government advice about the size of the RBA balance sheet and whether circumstances or inflation indicate it may need adjusting.
If the RBA or the government fail to administer the public money utility well the public can vote with their feet and use one of the hundreds of monetary flowers blooming in competition. Shops and businesses will quickly shift what they accept if the government “cheese” is not trusted.
5. This general MyRBA concept has been discussed for hundreds of years and particularly in the 1930s when the private banking model last when pear shaped in a big way. Aspects of the Chicago Plan are similar but I don’t think that idea considered the possibility of giving the public and non-banks direct access to central bank accounts.
It is the opening up access to central bank liabilities in the form of deposit accounts (in addition to notes and coins) to the general public and non banks that is critical because doing that forces the critical reforms to the current broken and dysfunctional private bank cartel and their “license” to print money unproductively.
I think the “MyRBA” moment is now:
1) Private banks offer negligible interest on at-call deposits; incommensurate with risk,
2) It’s workable. There are no technological barriers,
3) Private banks have abused their privileged position in the existing system,
4) It meets the needs of savers (security of deposits),
5) It obliges Private banks to correctly price risk, and not free-ride on domestic savers to attract funds,
6) It creates a level playing field in financial services; reducing the competitive advantage of incumbents.
Unfortunately, it probably requires a change to the RBA Act.
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I am not sure if it requires a change to the RBA act but at the very least it must be introduced by an elected government. I do not support the RBA unilaterally introducing MyRBA even if technically it could allow the general public to open and operate deposit accounts.
The main reason is that the powers of the private banks with regard to how they operate requires reform as part of introducing MyRBA.