Twilight or Dawn? Viktor Shvets’ case for CBDCs
A blueprint for the West seems better suited to China.
The most interesting ideas about money and credit often come from a non-financial worldview. That is the case with Viktor Shvets. He is a man of finance, as Macquarie Capital’s global strategist, but he sees such questions as driven by greater trends. He is particularly interested in generational change. From that vantage he has come to argue that, as younger people turn away from neoliberalism, central banks and their digital currencies will come to dominate money and credit.
In his book, The Twilight Before the Storm: How to Avoid a World on Fire, Shvets combines many fields, including sociology, demographics, and geopolitics, among others, to try to establish where our world is headed. He concludes (as have others) that our time resembles the 1930s. The 1930s ended in catastrophe. Shvets doesn’t believe we have to repeat that outcome. But what then does the world need to look like if we are to avoid a cataclysmic war?
Shvets argues that the fusion of the Information Age with decades of financialization is forcing a fundamental reconfiguration of money, credit, and banking, and that the 2020s-30s will recall the 1930s as a period in which societies invite the state back to the center of economic life. In this environment, central bank digital currencies (CBDCs), ubiquitous state risk‑management, and universal income guarantees become the institutional expression of a generational turn away from neoliberalism toward security, redistribution, and direct state stewardship of both money and capital.
There are plenty of weaknesses in these arguments, and I will highlight a few, but while doing so, I also have to wonder whether the alternatives might drag us further towards a fate we do not wish to meet.
1930s redux
For Shvets, the 1930s marked the exhaustion of the first liberal era and the birth of a state‑centric compromise that ran from the New Deal through the post‑war welfare state. High inequality, fragile banking systems, and mass unemployment created a political demand for heavy government intervention, culminating in an expanded fiscal role, stronger regulation, and a new social contract that lasted into the 1970s.
He argues that the decades after the Global Financial Crisis replay the same pattern: extreme financialization, historically high inequalities, and fears of “secular stagnation” have discredited the neoliberal belief that free markets and minimal government can self‑stabilize. Just as in the 1930s, deep insecurity pushes societies toward more authoritarian reflexes, sharper polarization, and a renewed willingness to accept extensive state intrusion, including in money and credit.
The generational backdrop is central to Shvets’s forecast. Baby Boomers spent their formative years rebelling against the overbearing, bureaucratic state of the post‑war order and then built a neoliberal regime of deregulation, tax cuts, and globalized capital that elevated asset prices, leverage, and individualism. This “Me Generation” world produced an entrepreneurial but increasingly unequal and unstable system whose functioning depends on ever‑rising leverage and asset valuations.
By contrast, Millennials and Gen Z, who came of age amid the GFC, stagnating wages, and climate anxiety, “seek no risk, but security,” Shvets says, preferring a rule‑bound community and looking to government for support and guidance rather than to unfettered markets. Their lived experience is one of precarious work, unaffordable housing, and repeated market failures buffered only by central bank and fiscal rescues, so they naturally see the state as the necessary guardrail against chaos, not as the primary threat to freedom.
This shift in values underpins Shvets’s expectation that younger cohorts will embrace state activism in income policy, industrial policy, and capital‑market management, including the architecture of money itself. Whatever the merit of this view, it ignores centrifugal forces in money today. I don’t believe in the bitcoin sound-money view, but whether it’s bitcoin or gold, there are powerful people who wish for a privatized version of money – and they have friends (or, more accurately, cronies) in the White House. Perhaps these are all just scammers feeding from the trough while there’s still good eats.
The end of sound money
Shvets frames the last four decades as an unprecedented wave of financialization that has created a “cloud of finance” five to ten times larger than underlying real economies. Money supply has grown two to three times faster than nominal GDP for more than thirty years, and financial claims, derivatives, and off‑balance‑sheet commitments dwarf productive assets, making both economies and markets acutely sensitive to volatility.
In such a system, he argues, there is no realistic path back to sound money in the classical sense. Any serious attempt to shrink this financial overhang or force money and credit to converge back toward real activity would trigger an uncontrollable repricing of assets, destroying pensions and household wealth and generating social unrest.
Instead, central banks have already de facto nationalized large parts of capital markets through quantitative easing, emergency lending facilities, and spread‑management tools. For Shvets, the financialization train has left the station; the task is not deleveraging but permanent risk‑management by the state.
What Shvets doesn’t discuss is the likelihood of financial repression, Japanese or Chinese style, in the US and Europe. Financial repression is adjacent to Shvet’s view, in which governments force their pension funds and insurance companies to buy their debt, and raise capital controls to enforce it. The question is whether countries can escape deleveraging. History suggests they cannot. Shvets says those governments that control their own currencies can.
CBDCs
Doing so implies a complete reorganization of fractional-reserve banking. Queue the CBDC.
Shvets expects the evolution of digital currencies, and especially central bank digital coins, to radically reshape banking and capital markets over the coming decade. In the industrial‑age monetary system, commercial banks sat at the center as deposit‑takers, credit multipliers, and risk assessors, transmitting monetary policy via fractional reserves and maturity transformation.
In a CBDC world, he argues, many of these functions migrate directly to central banks. With digital fiat accounts accessible to households and firms, central banks could issue money, stimulate or restrain credit, and conduct payments at almost zero marginal cost, disintermediating not only commercial banks but also credit card networks and private payment systems.
CBDCs and trusted stablecoins would dominate the monetary landscape; Shvets doesn’t address the prospect of tokenized deposits acting as ‘commercial bank money’, but it doesn’t matter: whatever the ledger and the rails, Shvets predicts a monetary architecture where risk‑free public money crowds out a significant share of commercial-bank‑created money, and the state gains fine‑grained, programmable control over liquidity and credit conditions.
To me, this may be a question of timelines. China will probably go this way, if it hasn’t already. Europe could follow. I struggle to see culturally the US or the anglosphere following. The Fed is now banned from dabbling in stablecoins, by law. There are also practical issues of providing services that ultimately accrue back to a central bank.
The biggest question is about growth. Throughout history, banks have created money that has underpinned and stimulated economic growth. To demote them to service branches of the central bank would require a world in which we don’t need them to provide this function.
Money, credit, and UBI
Shvets implicitly argues that growth is no longer necessary, thank you. He links the rise of CBDCs directly to the politics of distribution in an information‑age economy where technology substitutes for labor and marginal costs in production and distribution tend toward zero. As automation, AI, and digital capital erode the marginal utility and bargaining power of labor, he foresees intensifying polarization and disappointment and frustration unless societies adopt new mechanisms to share the gains from high productivity.
Universal basic income (UBI) is his central candidate for such a mechanism. He describes UBI as the only credible way to dispossess the possessors while reinstating the dispossessed without expropriation, revolutions, or war, echoing the New Deal’s role as a compromise that saved American democracy from fascist or communist alternatives.
In his view, UBI’s simplicity – direct payments above a poverty threshold to every citizen – would reduce administrative complexity, enhance human flexibility, and help people experiment with non‑traditional forms of contribution in a “post‑work” era. CBDCs provide the technological and institutional infrastructure for this: central banks could directly credit digital wallets and coordinate with treasuries.
Some primordial version of this could be brewing, if we consider the likely loss of independence by the Fed and other central banks. Many other observers expect fiscal policy to overtake monetary policy as the main driver (again, financial repression). Still, I have yet to be sold on UBI. I’m not sure it’s the right cure to what is really a spiritual problem if we indeed end up with mass unemployment. It could be liberating; it could just be a new peonage.
Modern Monetary Theory and digital money
Shvets adopts much of the MMT analytical frame for advanced economies with monetary sovereignty, arguing that in such countries “the treasury departments, central banks, and people are all one and the same,” and that these states do not need to “find” money but can create it, subject primarily to real resource and inflation constraints. Experience in Japan and elsewhere, he contends, shows that large, persistent fiscal deficits do not automatically produce runaway inflation or currency collapse in these contexts.
Seen through this lens, CBDCs accelerate an ongoing shift toward direct state funding of fiscal programs and explicit management of the cloud of finance. As central banks already buy large shares of government debt and set both levels and spreads of interest rates, the traditional role of private underwriters and bond markets becomes increasingly ceremonial. Shvets expects CBDCs to push this further, making it possible to bypass market intermediaries altogether and institutionalize a system where the state openly allocates credit and income support in line with social and political objectives.
Shvets isn’t saying these outcomes are better: he’s saying they are necessary if we are to avoid destruction. As in the 1930s, Shvets sees a breakdown of a liberal order based on self‑regulating markets, followed by a reluctant but inexorable expansion of state responsibility for stabilizing economies and mitigating inequality. The New Deal’s public works, social insurance, and financial reforms are mirrored, in his forecast, by 21st‑century tools: UBI instead of workfare, CBDCs instead of the strictures of the Bretton Woods arrangement (which included gold‑backed bank money), and macro‑prudential balance‑sheet management instead of ad hoc emergency measures.
However, the new regime differs in two crucial ways. First, Silicon Valley has given us information abundance, zero marginal costs, and excess capital, so the challenge is managing overcapacity and distribution rather than scarcity. Second, the instruments of control are digital and continuous: instead of occasional devaluations or one‑off regulatory shocks, central banks can modulate credit, incomes, and even individual spending conditions in real time through programmable money.
This is the most dangerous part of Shvet’s outlook. We are at the same time downgrading the role of central banks versus fiscal policy, yet we are handing them extraordinary powers and assuming they have the insights to avoid major errors.
This gives the state a reach over private economic life that far exceeds that of 1930s governments, and it raises new questions about privacy, political power, and the boundaries of acceptable control.
Sunny uplands of high productivity
All of this culminates in a striking long‑term vision. Shvets suggests that if societies manage the transition without catastrophic conflict, conventional capitalism may “slip into” an enlightened version of communism, not in the sense of centralized command, but as a high‑productivity society that dispenses with the need to toil to earn a living.
In this world, productivity growth could accelerate to 4-5 percent annually in the 2040s, and basic material security would be guaranteed by a combination of UBI, pervasive automation, and a digitally managed monetary‑fiscal complex.
In the interim – the 2020s and 2030s – he expects a messy, politically fraught transition: deepening state control over capital markets, the roll‑out of CBDCs and other digital monies, experiments with income guarantees, and ongoing tension between the demand for security and the desire to preserve meaningful freedom. As in the 1930s, the direction of travel is toward more state, not less; but this time, money and credit themselves become the primary levers through which that expanded state presence is exercised and legitimated.
This is in line with the way Silicon Valley people think about the curve of AI: it’s pretty similar to, say, OpenAI researcher Leopold Aschenbrenner’s vision in his monogram, Situational Awareness, which predicts the rapid emergence of artificial general intelligence. It’s good to have a strategy with a happy outcome. Yet it’s also similar to the promises of Trump and Vance that American workers will be better off if they accept the pain of tariff and industrial policies, a dubious proposition (which is now morphing into a gaslighting campaign to convince people that inflation isn’t real).
So, I don’t know. Shvets attempts too much in his book, a sort of theory of everything, which I don’t think he pulls off. But he makes strong or at least interesting arguments. My takeaway is that he’s written a blueprint for China, for a Chinese-dominated period. The degree of faith he puts in a command economy is quite alien to the West’s modern history. The post-war period saw the greatest degree of government intervention, with high taxes and controls on international capital flows. There was a political prospect of the West rebuilding something like that. It may yet, but as a fascist bloc, not a free one. That’s better than a World War Three, but I feel like we need to keep searching.
Viktor Shvets, The Twilight Before the Storm: How to Avoid a World on Fire, Boyle & Dalton, 2024.