The World in 2021

The pandemic is changing urban-transport patterns

People are getting on their bikes (and scooters)

OBSERVERS OF many industries claim that the pandemic has accelerated change in their sectors. But is it true for transport? 

Over the past decade, city planners have promoted public transport to ease congestion and reduce pollution. Since the start of the pandemic, however, people have been opting for more solitary options such as cars and bicycles. 

But street space is in short supply in dense cities such as New York and Paris. As a result, big cities should expect big changes in how people get around in 2021.

Until a vaccine is made widely available or better treatments are found, the pandemic will shape patterns of travel. To see how travel might evolve, we analysed mobility data from Apple, Google and TomTom in ten big cities. 

Use of public transport in August, when covid-19 cases had fallen from their initial peaks, remained 40% below its pre-pandemic norm. 

That suggests that in 2021, while the virus remains a threat, people will still prefer independent travel, despite efforts to make public transport safer by promoting the wearing of masks.

In Berlin passengers on public transport who fail to wear masks are warned of a €50 ($60) fine with the slogan “Protect others. Yourself. And your wallet.” 

Our data suggest that many people will avoid such fines by driving instead. Traffic congestion in Berlin was 8% above pre-pandemic levels between August and October. 

The pandemic has driven up vehicle registrations in New York City. In every city we analysed, car use grew more quickly than public transport and walking, after lockdowns eased in mid-2020. Congestion has followed this trajectory in most places, though a drop in tourist numbers has freed space on the roads.

In recent years urbanites in developed countries have been shifting away from driving and car use, in favour of public transport, ride-hailing, car clubs and other alternatives. Tightening regulation, in the form of congestion charges and emissions rules, also made car ownership less attractive. 

Julia Poliscanova from Transport & Environment, a think-tank, says the future of city centres is, if not car-free, then at least electric. In 2021 the EU is due to review its rules on emission standards that will help reduce the numbers of dirty vehicles on the road. 

The recent uptick in car usage may prompt cities to accelerate their plans to ban non-electric vehicles from their streets.

Several cities, including Athens, Budapest, London, Milan, New York and Paris, have pedestrianised streets to aid social distancing and introduced new bike lanes. Many plan to make these changes permanent. 

As the combination of more cars and closed-off roads compounds congestion, that will help two other competitors in the race for space on the streets: bicycles and e-scooters.

During the lockdowns in mid-2020 bicycles experienced a surge in popularity. New bikes were in short supply, and city residents who had previously considered bike-sharing schemes to be transport for tourists changed their minds. With few visitors around, London’s bike-sharing scheme saw a threefold increase in new users between March and July. 

The city’s cycling tsar, Will Norman, says London has added 40 miles of temporary bike lanes. Nationally, the government has pledged £2bn ($3.2bn) towards new cycling and walking infrastructure. 

During the summer, cycle traffic recovered to pre-pandemic levels on many commuter routes into central London, even as offices remain largely empty. In 2021 many more commuters will opt for pedal power.

The latest contender for street supremacy is the e-scooter, which can be rented by the minute using a smartphone app. Startups have launched scooter services in cities around the world, and the pandemic has strengthened the case for their adoption. In Berlin, which has thousands of e-scooters, usage rose when lockdown eased in May 2020.

One argument against e-scooters is that they are used for short trips and may discourage walking and cycling, but do not replace car journeys. But an analysis by inrix, a research outfit, in 2018 found that one-fifth of car journeys in large American and British cities were of less than a mile. 

Half of urban car trips in America, and two-thirds in Britain, were shorter than three miles. Some critics say e-scooters are dangerous. But data from Lime, a rental firm, indicates that one-third of all accidents occur within the first five journeys, which suggests that training and practice can help. Pilot schemes to approve e-scooters have been launched in Britain and are likely to go ahead in New York.

Another way to ease congestion, of course, is to work from home. Even before the pandemic struck, Tokyo had devised a programme to encourage firms to let employees work remotely, or commute outside peak hours, in order to reduce crowding during the 2020 Olympics. 

If the games go ahead in 2021, the city will be well prepared.

The ‘everything rally’: vaccines prompt wave of market exuberance

The prospect of a rebound in the global economy has fuelled optimism despite the economic damage from the pandemic

Robin Wigglesworth in Oslo 

© FT montage; Bloomberg; Getty Images | From a strong start by tech, the rally has broadened to take in everything from airlines and energy to bitcoin and oil

The markets have become too hot to handle. So intense is the frenzied stock-buying that even many of Wall Street’s biggest brokerages and wealth managers are struggling to keep up.

Almost every major US brokerage firm — from old stalwarts like Charles Schwab and Merrill Lynch to new platforms such as Robinhood — suffered at least one outage in November, according to Downdetector, a website that tracks online service problems, as a torrent of trading overwhelmed their websites.

Thomas Peterffy, the billionaire founder of Interactive Brokers, who first started trading on the now-defunct American Stock Exchange in the 1970s, says the current environment is unlike anything he has ever seen before — but understandable. 

“Money is now so easy, why not borrow what you can and put it into stocks? That’s what our customers are doing, and they’re making helluva lot of money,” he says.

Retail investors led the dramatic equity market recovery from the Covid-19 shock, flooding internet message boards to share memes, boast of wins and lament losses. 

But now they are increasingly joined by the investment industry’s heavyweights, which are helping reinforce and broaden out the most remarkable bull run in financial history.

The MSCI All-Country World index climbed another 12.2 per cent in November — its best month on record — to touch new all-time highs. The gauge has added $30tn in market capitalisation since the March lows.

Moreover, this stage of the rally has been mainly powered by corners of the market largely left behind during the pandemic, such as energy stocks, airlines, hotel groups, European banks, smaller US companies and emerging markets. Indeed, it has become what some analysts have termed an “everything rally”, with junk bonds, copper, oil and even bitcoin climbing sharply. The only major markets to have taken a hit are classic havens, such as US Treasuries and gold.

The backdrop to such a frenzy seems improbable. The second coronavirus wave is unravelling some of the tentative economic recovery from the brutal March shock. 

All told, the global economy is likely to shrink 4.4 per cent this year, according to the IMF — a decline not seen since the Great Depression.

However, the emergence of several credible, effective coronavirus vaccines has triggered a burst of optimism that the global economy is poised for a powerful rebound in 2021, as the pandemic recedes but the extraordinarily aggressive stimulus measures continue to send money sloshing around the financial system.

“The game-changer was the vaccine,” says Peter Oppenheimer, chief global equity strategist at Goldman Sachs. “Hope is one thing, actually seeing the evidence (of a vaccine) is quite another. And the evidence was much better than most people were expecting. We’re still optimistic that you’ll see quite good returns in equity markets next year.”

However, some investors and analysts remain uneasy about the current ebullience. Yes, effective vaccines could eventually suppress Covid-19, but for now it continues to linger and the monstrous damage it has already inflicted will take a long time to heal.

Noting signs of uncritical optimism among fund managers, Bank of America’s chief investment strategist Michael Hartnett recommends that investors ratchet back their exposure to stocks in the coming weeks and months, arguing markets are now approaching a “full bull” stage and are vulnerable to a setback.

Jeremy Grantham, the famed contrarian founder of the investment group GMO, thinks even this is optimistic. He reckons markets have smashed past the “full bull” stage and are in a late-bubble “melt-up” phase that rivals the two biggest bubbles of the past century.

“There is as much craziness now as there was in late 1999 or 1929,” he argues. “It is bewildering, impressive and for financial historians like me, exciting. This is the real thing . . . It looked like we were in a bubble mode this summer, but the real craziness has come out in the last few months.”

Donald Trump’s impending exit from the White House is seen as a positive by markets © New York Times/Bloomberg

Joe Biden promises stability as president while a split Congress should blunt the Democratic party’s left © Mark Makela/Getty

Magic wands

The early stage of the rally was powered by mammoth fiscal and monetary stimulus packages from central banks and governments around the world, totalling trillions of dollars. 

The impact of ultra-easy monetary policy including very low interest rates — and the prospect of it continuing for years to come — remains the dominant driver, analysts say.

But November’s shift from optimism to near-euphoria has been triggered by an alignment of several stars. First, Joe Biden won the US presidency but Democrats failed to gain control of the Senate. 

For many investors that was close to the perfect result, ejecting the erratic, norm-shattering Donald Trump but stymieing the more radical parts of the Democratic agenda — such as heavy corporate tax increases.

While another big dose of fiscal stimulus may be trickier to pass, this will mean that the Federal Reserve is more likely to keep its foot on the monetary pedal. “Gridlock is Goldilocks,” was the pithy title of one Wall Street analyst’s note on the subject. 

That President Donald Trump’s refusal to accept the result has failed to trigger any significant unrest has added to investors’ relief.

Then, BioNTech-Pfizer, Moderna and Oxford university-AstraZeneca announced that they had developed coronavirus vaccines that were in most cases more effective than expected. This provided an enormous jolt to global markets, which could contemplate a gradual economic normalisation next year, with pent-up demand and super-easy monetary policy fuelling a huge growth spurt.

Reports of corporate profits rebounding have reinforced the optimism. And to cap it off, last week it emerged that Mr Biden would name former Federal Reserve chair Janet Yellen as his Treasury secretary. 

That raises the prospect of co-ordinated and aggressive fiscal-monetary policymaking to combat the economic damage wreaked by Covid-19, further delighting investors.

Ed Yardeni of Yardeni Research referred to Ms Yellen as the “Fairy Godmother of the Bull Market” when she was chair of the central bank in 2014-18, due to her dovish views, and reckons her re-emergence as an influential policymaker is another positive sign for equities. 

“Now as Biden’s Treasury secretary, she will continue to wave her magic wand,” he argues.

The combination of factors has been electrifying. 

Fund managers have not been as hopeful that economic growth and corporate profits will improve since 2002, according to a widely-followed Bank of America survey. 

Their cash reserves have dropped by 1.8 percentage points in the past seven months — the fastest slump on record — to nearly 4 per cent. 

The survey showed that fund managers’ optimism on stocks has jumped to the highest since early 2018, when markets were basking in the glow of Mr Trump’s corporate tax cuts.

Liz Ann Sonders, of Charles Schwab, says frothiness has moved out into pretty much every measure of market sentiment © Bloomberg

Prospective Treasury secretary Janet Yellen is expected to push for more stimulus from Federal Reserve chair Jerome Powell © Bloomberg

Investors are also pumping more money into fund managers. Equity funds have globally hauled in nearly $90bn since the beginning of November, after the strongest three-week stretch of inflows on record. 

Goldman Sachs estimates that “short” positioning on US stocks — bets on them falling — is the lowest since at least 2004.

“The vaccines have cemented the view that even if we’re still in a tunnel, there is light at the end of it,” says Liz Ann Sonders, chief investment strategist at Charles Schwab. 

“The froth in sentiment had been concentrated in day traders, but since the Pfizer news we have seen that frothiness has moved out into pretty much every measure of sentiment.”

Aside from propelling many major equity market indices to record highs, the November newsflow has triggered a seismic investor “rotation” away from stocks that were seen as Covid-era winners and into beaten-up industries that are more closely tied to the health of the global economy. 

What was once a one-engine rally — with Big Tech providing virtually all of the vim — has seen markets fire on almost every cylinder in November.

European bank shares and global energy stocks had lost about half their value by the March nadir, and have since largely languished. But in November they soared 30 per cent and 35 per cent respectively. Airline stocks jumped more than 30 per cent. The Russell 2000 index of small US companies climbed more than 18 per cent, almost twice the gain of its “big brothers”, the S&P 500 and the Nasdaq 100 indices. 

Emerging market stocks rose more than 9 per cent in November, the biggest monthly gain in nearly four years. Junk bonds have almost clawed back all their 2020 losses.

Consensus fears

Nonetheless, there is a danger that stimulus-soaked, vaccine-happy markets may be becoming oblivious to both the immediate economic dangers that continue to linger, and the enormous longer-term damage the pandemic has already caused. 

Even Morgan Stanley, one of the more bullish of Wall Street’s investment banks, concedes there is a danger of a “near-term ‘air pocket’ for markets”, given the froth.

Lori Heinel, chief investment officer at State Street Global Advisors, admits that the fact her longstanding optimism is now commonplace gives her pause. “That’s the one thing that keeps me up at night, that we’re incredibly in-consensus,” she says. “It makes me nervous when we’re all saying the same thing.”

Good news on Covid-19 vaccines has inspired a dramatic market rally © Robyn Beck/AFP/Getty

Although the development of effective vaccines is unquestionably positive, some economists point out that it will take up to a year to produce and distribute enough of the vaccines to inoculate most of the world. 

In the meantime, the second coronavirus wave is threatening to unravel the summer’s economic recovery.

Europe’s renewed lockdowns mean that all of the region’s major economies are suffering another contraction, according to Deutsche Bank. In the US, last week’s Thanksgiving holiday could turn out to be a “super spreader event” that ultimately leads to another downturn in the first quarter of 2021, says Michael Feroli, JPMorgan’s chief US economist. The looming Christmas holiday could become an even bigger Covid spreader for many other countries.

Two remaining Georgia Senate seat elections in January could also upset markets, some analysts note. If the Democrats triumph, the party would in effect enjoy control of both executive and legislative branches. 

That would likely lead to a heftier stimulus package, but put corporate tax hikes and more aggressive regulatory moves back on the agenda, potentially wrongfooting markets.

Conversely, governments refusing to countenance more stimulus and ratcheting back public spending too quickly — as happened in the wake of the global financial crisis — might sap the market rally of its vim, other analysts caution. 

“We suspect that policymakers in general will be wary of engaging in austerity drives this time around. Nonetheless, there is a risk that they withdraw fiscal support too much too soon,” says John Higgins, an analyst at Capital Economics. “That could slow economic growth and take the wind out of stock markets’ sails.”

Financial markets are forward-looking, and will probably be able to shrug off a tricky few months by focusing on the brighter outlook next year, investors say. The IMF has pencilled in a 5.2 per cent expansion for the global economy in 2021. 

But with an economic recovery already baked into stock markets, even a modest disappointment next year might upset markets.

Moreover, equity markets may be damaged if bond yields continue to climb higher — perhaps spurred by a long-forecast acceleration in inflation in 2021, says Ms Sonders. 

Stocks benefit hugely from low bond yields, both due to the miserliness of the prospective returns of fixed income and because they directly feed into how investors value the future earnings of a stock. Rising bond yields might make fast-growing technology stocks — which have dominated returns this year — seem particularly frothily valued.

Yet a decent year but a more volatile decade may be the inevitable consequence of measures taken by governments and central banks since March, some analysts caution.

While Goldman Sachs has some of Wall Street’s punchiest forecasts for the coming year, Mr Oppenheimer admits that the longer-term outlook is murkier, given heftier debt burdens, which he believes will over time weigh on growth, already-high stock prices and limited scope for bond yields to fall. 

“While the inflection point in the global economy and company profit is likely to be strong, supporting a decent period for equity markets, we’ll probably see lower returns than we saw in the last decade,” he says.

Lori Heinel, CIO at State Street Global Advisors, says the industry is ‘incredibly in-consensus’, but GMO founder Jeremy Grantham cautions that markets have smashed past the ‘full bull’ stage © Getty

Room to rise?

The bulls are undaunted. Mr Peterffy reckons that given the unfettered, central bank-financed government largesse, the stock market could — albeit with some “hiccups” along the way — double in price over the next three years, even if he suspects that inflation is inevitable, and will gobble up much of those returns in real terms. “This doesn’t look like it is going to end soon,” he says.

Mr Grantham says the euphoria is “completely understandable”, given the prospect of ultra-easy monetary policy for years to come and the “spectacularly successful” vaccines that are beginning to be approved by regulators.

But he suspects that once the vaccines actually start being administered at scale and the pandemic recedes, a lot of investors are going to wake up to the fact that the global economy is still dogged by a host of thorny problems that both predate and have been exacerbated by the virus.

“While we have this euphoria, it’s pretty hard to imagine the bubble breaking,” he says. “But you look at the data and you think this thing could go next week.”

Inside Operation Gideon, a Coup Gone Very Wrong

Why did three American ex-Special Forces soldiers try to overthrow the Venezuelan government?


The two Americans left late on May 2nd, 2020, well after dark had fallen on an arid beach near Castilletes, in northern Colombia. The men, both ex-Special Forces, had been waiting to pile into a flat-bottomed boat stocked with guns and ammunition and about 50 Venezuelan revolutionaries for a journey into the heart of enemy territory. 

The mission was Operation Gideon, and its objective was to overthrow President Nicolas Maduro.

But the weather wasn’t cooperating, and the 5 p.m. launch had been delayed by an hour, then another. One pilot boat carrying 11 had already shipped out, but the Americans waited for the all-clear from the operation’s leader, Jordan Goudreau, the intense ex-Green Beret and head of the private-security company Silvercorp USA. Goudreau was some 1,100 miles northwest in Florida — the boat he intended to get him to Venezuela had broken down — poring over weather forecasts and giving orders via satellite phone.

Around 8 p.m., the winds finally lulled. Goudreau radioed the two Americans to depart. The plan, even in good weather, would have been incredibly risky. They were to sail undetected through hostile waters for about 16 hours before landing just north of Caracas. 

From there they would fan out. One group would take over a broadcast station, which would activate a number of sleeper cells. The two Americans would commandeer an airport, while another group would capture Maduro, the feared Bolivarian dictator who has starved his people and exacerbated one of the largest refugee crises in the world. 

Finally, they would exfiltrate the deposed leader via plane to the U.S., which had placed a $15 million bounty on his head.

Pretty much everything went wrong. The revolutionaries, having trained on land, spent their miserable voyage seasick and vomiting overboard. 

Hourly calls between Goudreau and the mercenaries failed to go through — in one crucial miscommunication, Goudreau thought the boats were turning back to Colombia, when they’d sailed on. 

An engine gave out, fuel ran low. Venezuelan fishing boats informed the government of at least one of the vessels. The pilot boat was overtaken by the Venezuelan military, which killed six men on board. 

The larger one was escorted by Maduro forces into the sea town of Macuto. In propaganda videos released by Venezuela, the rest of the revolutionaries — as well as the two Americans — can be seen aboard the boat with their hands in the air.

The story of the failed coup is one of a plan so inept it makes John F. Kennedy’s Bay of Pigs fiasco 59 years earlier look sophisticated. Among the supplies brought were a high-end BB gun and a Kindle e-reader, according to photographs taken after the raid, and the two Americans, former Staff Sgt. Luke Denman and Sgt. Airan Berry, hardly spoke Spanish. 

Not only had the Maduro regime infiltrated Operation Gideon with informants, the secret plan was no secret at all: It was openly discussed on Venezuelan television, and its existence had already been reported in an article by the Associated Press. Goudreau himself provided a comment.

Operation Gideon’s failure isn’t in dispute. What’s less clear, however, is how it came to be. Those who supposedly knew about it — intelligence operators, political and military wanna-bes, secretive Trumpworld associates — have distanced themselves from it, unsurprisingly, as it resulted in the imprisonment of two former U.S. soldiers, the deaths of an unknown number of Venezuelans, and a consolidation of power by the Maduro regime.

Goudreau told me his story over four hours in two conversations, first over Zoom from an undisclosed location with the shadow of a ceiling fan spinning overhead, then from a burner number with a Texas area code. 

He surfaced in November after going underground for six months, a period of time he refuses to talk about. I corroborated details of his story with more than a dozen firsthand sources, as well as reporting from AP and the Miami Herald, but his perspective, especially on the launch of Operation Gideon, provides a key to understanding the coup gone wrong.

I’d been trying to find Goudreau since May. Those who’d known him — some trustworthy, others less so — described him alternately as a savvy con man, a world-class bullshit artist, a loose cannon too naive to realize he was being played. What I found was more complicated. 

Goudreau was often ingratiating, confident, and open about his history of concussions, memory lapses, and the deep toll that 15 years of fighting in the Middle East have taken on his health. Still, details of his story differ in slight but significant ways on retellings, and sometimes contradict documented evidence. 

He and his lawyer never sent data and documents that, Goudreau says, would prove details of his story right. Anger rises swiftly when I challenge him.

PREPARATION: Berry (left) and Denman were recruited by Jordan Goudreau. “Luke told me that he had a buddy in Washington, D.C., working [with higher- ups] on a plan to train Venezuelan nationals to repatriate their country,” says a friend of Denman.

Goudreau is also more inconsistent than his detractors have painted him: The 44-year-old calls himself a mere “kid” unfamiliar with business, while insisting he’s the mastermind behind the operation; he defends an allegedly cartel-linked Venezuelan general as having “a good heart,” while railing against other politicians for unspecified corruption; he insists that Operation Gideon was an honest attempt to liberate the Venezuelan people, while decrying the regime-change politics that led to the Iraq and Afghanistan wars. 

In part because of his alleged betrayal by the Trump administration, at several points during our conversation Goudreau compares himself to Julian Assange and Edward Snowden, the latter of whom he calls a “hero.”

Yet, despite his engineering of a foreign coup, Goudreau is still a free man. Federal law-enforcement agencies have arrested others allegedly involved in the plot, but the Justice Department has not filed an indictment against him. 

His surfacing comes as he sues one of his financial backers for breach of contract, claiming he’d been told the planning was done with the personal knowledge of President Donald Trump and Vice President Mike Pence, and that Juan Guaidó, Maduro’s U.S.-backed challenger, had supported Goudreau’s plan to invade Venezuela through to the end — all claims that have been disputed.

“Look, I’m responsible for everything I do or fail to do,” Goudreau says. “I’m not, ‘Oh, it wasn’t me.’ That ain’t me, man. I fucked up. I own it. It’s on me. But at the same time, there’s reasons why.”

Though modern private-security firms have been around since the 19th century, use of military contractors exploded after 9/11, which ushered in a new age of privatized war. 

At its peak, in 2009, about 50,000 mercenaries were in the Middle East to fill in the gaps for the military. 

It made sense for those enlisting, since contractors were paid at least double the military’s rate, and there were fewer rules to follow. If a situation got fucked, you could still skip the country and never really have to worry about a court martial or criminal prosecution.

“There was no accountability,” says Sean McFate, author of The Modern Mercenary and a senior fellow at the Atlantic Council. “International law around this is very weak, and it’s very hard to enforce.”

     Goudreau in Afghanistan, circa 2015. / Courtesy of Jordan Goudreau

After Blackwater mercs gunned down 14 civilians at Nisour Square in Baghdad in 2007, the U.S. cut the flow of money to military contractors. But according to Doug Brooks, the former head of a private-security industry group, the business didn’t go away. It just got smaller, harder to track, and more clandestine.

“Most Americans, when they think of private security, they think of Blackwater, and that’s the Jurassic age at this point,” McFate says. “The whole industry has gone full-on mercenary. And there are a lot of charlatans in the business.”

Goudreau insists that Silvercorp USA isn’t a mercenary organization. “We’re just trying to solve problems,” he says. It’s the kind of vague corporate patter one expects to hear from Wall Street types, not someone who’s spent nearly his whole adult life making war.

Goudreau says he was raised in a fairly typical lower-middle-class Canadian family in Calgary. “I grew up on Transformers and Voltron,” he says. He heard stories about his great-grandfather, who’d fought in World War I, and a cousin, Donald Ian McDonald, who was a drug adviser for Ronald Reagan. 

Ever since he was a boy running around in U.S. Army T-shirts, his goal was to join the Special Forces. When he was 17, he joined the Canadian Army Reserve, before enrolling at the University of Calgary and getting a degree in computer science. After getting a green card, he joined the U.S. Army at 24 in February 2001.

Goudreau spent 15 years in the Army, earning three bronze stars and rising to sergeant first class. The way he tells it, his time in the 10th Special Forces Group put him in some of the most contentious, and pivotal, moments of the post-9/11 Middle East. Publicly available Army records are sparse, but they don’t contradict him. 

His job was to kill people deemed “high-value targets” by Army command, he says. As a member of the elite Delta Force squad, he says, he was deployed to Sadr City in 2006, the site of some of the most prolonged violence during the Iraq War, just as Saddam Hussein was executed and the “surge” began. (He declined to watch Hussein hang, even though he was invited to attend, he says.) 

He also claims he was deployed to Libya in the wake of Ambassador Christopher Stevens’ death at the raid on the U.S. Embassy compound in Benghazi on September 11th, 2012.

His final deployment to Afghanistan came in 2014. By then, he was not the same man who enlisted. He claims to have survived countless stabbings, explosions, shrapnel wounds, and blunt-force trauma to the head. Even the impact from explosions he set off had a deteriorating effect on him. “I’ve dispatched terrorists several ways, with grenades and rockets and thermobaric bombs. So it adds up,” he says.

An Army neurologist effectively ended his military career following some brain scans that showed traumatic brain injury, and he was honorably discharged in February 2016. 

“When I got out of the Army, I was in really bad shape,” he says. He went to the Cleveland VA Medical Center, where they treated his concussions and back injuries and put him on a healthy diet. 

Once he was out, he rode a Harley-Davidson across the country with a friend, staying at campsites along the way, working through the trauma of war. “The hardest thing I ever did in my life is get [out of] the Army. This is all I knew. I was always a soldier,” he says.

Goudreau’s home life during his Army career led to legal problems and debts that persist to this day. He had married a University of North Carolina student and part-time bodybuilder who helped recruit for the FBI on campus, and in 2007 they were living in Phoenix and had started a property-management business together. 

But by 2013, the Department of Defense launched an investigation into him over his allegedly defrauding the Army out of at least $62,000, court documents show, by overcharging for rent stipends. 

Goudreau says that his then-wife, from whom he is now divorced, lived in Brooklyn, but the Army claimed she was living in Arizona. Goudreau says his paperwork clarifying the situation was rejected. 

Bloomberg reported that Army investigators found there was probable cause Goudreau had committed fraud and forged documents. (Requests to his lawyer for documentation went unanswered, and his ex-wife, who was not implicated in the investigation, didn’t return multiple calls and messages seeking comment.)

Goudreau now plays it down as a misunderstanding and continues to pay back the debt. But others remember his anger. “I met him when he was becoming unhinged about that situation,” Francis X. Reilly, a retired Air Force master sergeant, tells Rolling Stone. 

At the time, Goudreau was crashing for free at Reilly’s place in Florida after they’d met at an event for veterans. “He was not in a good place, let’s just put it that way. He was saying not very good things about what he wanted to do to the people he owed the debt to.”

Reilly was stationed in Georgia and rarely saw Goudreau, but they would occasionally have lunch. “He was a supernice guy, but he just wasn’t — I don’t know,” Reilly says. “I’d probably trust the dude with my life. It was just, I didn’t know him that well. He got out of the Army on a bad note. Some of the stuff he told me he did in Afghanistan . . . that’s probably what’s wrong with Jordan. We had to do a lot of bad shit.”

It was around this time, in early 2018, that Goudreau first came up with the plan to start Silvercorp. Prior to that, he was aimless, working security jobs wherever they’d come along. He says he’d been inspired after a gig for AT&T in Puerto Rico and, later, by the shooting at Marjory Stoneman Douglas High School in Parkland, Florida. 

“Every single high school shooting, the police get their ass kicked,” Goudreau says. 

“My premise is, I’m going to put guys in who are gunfighters.” According to a notarized statement Reilly filed with the Florida Department of State, Goudreau listed Reilly and used his home address on the paperwork for the company. Reilly claimed the documents were “filed fraudulently” without his knowledge or consent.

That spring, Reilly says, he found out that Goudreau had been quietly making money renting out properties on Airbnb and told him to leave. Reilly hasn’t heard from him since.

“I fucked up. It’s on me,” says Jordan Goudreau — pictured in 2020 — about the coup. “But at the same time, there’s reasons why.” / Courtesy of Jordan Goudreau

Goudreau’s interest in Venezuela started in February 2019, after working security at a Richard Branson-sponsored festival in Columbia, which was raising money for refugees in the region. 

Six million Venezuelans have fled since Maduro took power in 2013, and many of them came into the neighboring country. “Somebody called me and said, ‘Hey, I need a counterterrorist, there’s going to be problems,’ ” Goudreau says.

Despite its vast oil wealth, Venezuela is one of the least stable countries in the Western Hemisphere. Since the 2013 death of Hugo Chávez, Maduro has overseen the collapse of the Venezuelan economy, where the military has taken control of most of the country’s food and supplies, and the wealth from its oil reserves stays concentrated in the hands of his cronies. Venezuela “is mired in hunger, misery, corruption, and persecution,” says Andreina Baduel, a journalist there whose brother, Adolfo, is jailed for participating in Operation Gideon and whose father and husband have also been imprisoned for political reasons.

“It is very hard, what you experience here. It is an odyssey to get water, gasoline. . . . The electricity, the internet, etc., are long gone.”

In 2018, Maduro won a sham election, emboldening a new political adversary in his opponent Juan Guaidó, whom the U.S. and 49 other countries recognize as the true leader of Venezuela. 

At the time, there was a widespread belief in Washington, D.C., that Maduro’s administration was on the verge of toppling and the Venezuelan “armed forces would flip and go right over to Guaidó,” says Michael Shifter, a member of the Council on Foreign Relations. 

Trump reportedly asked his advisers why the U.S. couldn’t just invade the country. In his tell-all memoir, former National Security Adviser John Bolton — a Venezuela hawk who supported increasing sanctions on the country —claims that Trump told advisers that it would be “cool” to invade.

At the same time, Guaidó, now in exile, was plotting his own overthrow of Maduro. One of his operatives was J.J. Rendon, an eccentric and shrewd anti-socialist political strategist whose fingerprints are on many of the past decade’s Latin American elections. 

A professed Buddhist who is usually seen wearing all black, Rendon says he considered at least 20 different plans, including propaganda and legal options, as part of a broader push for Guaidó to gain power. 

“There were soft scenarios like talking, influence,” he says. “Some of the things we were implementing at that moment already happened,” like the international community decrying the Maduro regime as criminal.

And then there was ousting the president, which Goudreau claims he found out about from Donald Trump’s former personal bodyguard Keith Schiller. (Four lawyers who have represented Schiller didn’t respond to requests for comment on his behalf, and the White House didn’t return an email seeking comment.) 

“He was introduced [to] me by somebody else who had worked with me and saw what I was capable of,” Goudreau says. From there, the 133-page lawsuit Goudreau filed against Rendon in November explains his version of how he got involved: In May 2019, Schiller’s consulting company sought to hire Goudreau to help overthrow Maduro and made representations that this plan had the Trump administration’s backing. 

Goudreau then went to Bogotá, Colombia, to meet with exiled leaders of the Venezuelan military, including Gen. Cliver Alcala, a military official now in U.S. custody for drug trafficking, a charge he’s denied. (He is currently awaiting trial.) Goudreau says he made further inroads with the Trump administration by meeting with Drew Horn, an aide to Pence around this time, and Travis Lucas, whose lobbying firm has worked on behalf of the Trump administration. 

He also met with various financiers, including Roen Kraft, heir to the cheese fortune, and claims in the suit that Kraft had briefly discussed the coup plan with Pence at an event. Though attempts to reach Kraft through his family’s company were unsuccessful, he told the AP that he had discussed funding humanitarian aid, but after Goudreau maintained it would be a military operation, Kraft declined to fund it. By the fall, he was out.

FILE - In this Feb. 5, 2020 file photo, U.S. President Donald Trump walks to a meeting in the Oval Office with Venezuelan opposition leader Juan Guaido at the White House in Washington. According to interviews with opponents of Venezuelan President Nicolas Maduro and aspiring freedom fighters, planning for a clandestine cross border incursion from Colombia began in the aftermath of an April 30, 2019 barracks revolt by soldiers who betrayed Maduro and swore loyalty to Guaido, who the U.S. and some 60 other nations recognize as Venezuela’s rightful leader. (AP Photo/ Evan Vucci)

Trump and Venezuelan opposition leader Juan Guaidó (left) at the White House in February 2020. / Evan Vucci/AP

According to the suit, Rendon contacted Goudreau in August 2019. After allegedly considering a competing proposal by Erik Prince’s Frontier Services Group that would have cost $500 million, the suit alleges, Guaidó decided to go with a plan hatched by Goudreau that would have cost $1.5 million up front, with more than $200 million paid for through oil sales after Guaidó took power. (A lawyer for Prince provided a statement to Rolling Stone in response to Goudreau’s suit: “Erik Prince never made any such proposal to the Guaidó government, but he does believe strongly that any action taken in Venezuela must be swift and decisive to avoid a protracted civil war.”)

Although the Trump administration has used sanctions and support for political opponents to pressure Maduro to step down, Secretary of State Mike Pompeo has said there was no “direct” U.S. involvement in the attempted coup. 

Guaidó has denied any personal connection to the botched invasion. Lucas says any claims his company had any knowledge of the coup, or played any role in it, “are completely false.” Schiller has previously denied involvement.

By July 2019, Guaidó had been setting up training camps throughout Colombia for three months, one Venezuelan opposition leader told the BBC. About 300 anti-Maduro soldiers, drawn from Venezuela’s military and police, according to two people familiar with the plans, began training around seaside tourist towns: Maicao, Palomino, Riohacha, and Santa Marta, according to information provided to Rolling Stone by an ex-law enforcement officer with connections to the Colombian military.

The camps were not a success. Ephraim Mattos, a former Navy SEAL who conducts humanitarian operations and was in touch with one of the rebels, says food was scarce; water was run in by hose from a nearby river. There was very little training. The men would watch war movies or play FIFA during their off-hours.

By September, the plot was taking shape. “I learned at this point that there was a specific plan to overthrow Maduro, put Guaidó into power, and take back the country,” says Mattos. He realized something was off almost immediately. One of the revolutionaries showed him pictures Goudreau had posted of himself sitting in his car and working security at a Trump rally as proof of his bona fides.

“This is not how a professional operator acts. This guy’s obsessed with himself,” Mattos says. “I told [the Venezuelan revolutionary], ‘This guy is not who you think he is.’ ” But even Mattos didn’t know what to think. “I kept it in the back of my mind that maybe he was backed by the CIA or some kind of a go-between,” he says.

Within a month the whole plan crumbled. The number of willing rebels collapsed from 300 to 60 in a storm of accusations that one person or another was a spy. Talks between Goudreau and Rendon also broke down. 

An October 16th contract, allegedly signed on behalf of Guaidó and included as an exhibit in Goudreau’s lawsuit, specified that Goudreau would help in “planning and executing an operation to capture/detain/remove Nicolas Maduro . . . and install the recognized Venezuelan president, Juan Guaidó.” (Guaidó has denied all involvement.) 

Rendon tells Rolling Stone he couldn’t trust Goudreau after he said he would move forward with the operation with funding from investors who had ties to Maduro — which could undermine the entire plan. “[Rendon] signed that contract with no intention of paying anything, because he knew at the end of the day I was gonna do it, because that’s who I am,” Goudreau says. (Rendon tells Rolling Stone that Goudreau’s suit is “bogus,” and says that a later agreement nullifies the contract that Goudreau uses as the basis for his suit.)

In October 2019, Rendon paid Goudreau $50,000 out of his personal bank account, which muddied the waters about the intentions of Guaidó’s camp. According to the lawsuit, that was meant to be the first installment of the fees for the coup. 

While Rendon has previously told news outlets the payment was only intended to reimburse expenses and quietly end the relationship, I didn’t understand why he would pay Goudreau at all, and I pressed Rendon on that point. 

Why not let him eat the loss? Rendon conceded that the payment wasn’t meant to cut ties entirely. “In order to keep it civil, in my mind, I was leaving the door open for talking in the future,” he says. “To let the guy go with his expenses covered and no hard feelings.”

In January 2020, Goudreau and the two other Americans met at a small Miami-area airport before boarding a private plane headed to Barranquilla, Colombia. Goudreau had apparently found other backing. Driven by what he now says was a calling to overthrow a tyrant, he was going forward with the plan.

CAPTURED: In a press conference on May 6th, 2020, Venezuelan President Maduro holds up what he claims are Denman and Berry’s passports. The two Americans have since been convicted of terrorism and arms trafficking, and were each sentenced to 20 years.

Miraflores Palace Presidential Press Office/AP

Airan Berry, 41, had served 17 years in the Army, earning two Bronze Star medals and commendations for his tours in Iraq and in Kosovo. He’d enlisted straight out of high school; he had a black beard, tattoos covering his wide, muscle-bound arms and hands, and a fearsome demeanor. Privately, he was deeply into conspiracy theories, following at least 10 accounts on Instagram tied to QAnon, Vice reported shortly after his capture.

Of the three, the least likely to have been caught up in an international debacle was probably Luke Denman. The 34-year-old was from a military family and had a reputation as a loner. At Westlake High, the Austin school known for its football program, he was drawn toward skateboarding and sketching, and later riding motorcycles, according to his mother, Kay.

After graduation, he took his time before enlisting. There was an aborted semester at Austin Community College, then odd jobs around the city. “He just thought that his life wasn’t going the direction he wanted,” says Tatiana Saito, his girlfriend since 2015. Denman spent about five years in active duty and served a combat tour in Iraq for the 10th Special Forces Group before coming back in 2011. After that, he was briefly married while continuing to serve as a reserve.

The years before Denman joined Silvercorp were some of his most restless. He bounced around jobs: tree-nursery worker, pilot, security guard, commercial diver. He grew his collection of motorcycles, including his dad’s Harley, which he would ride as far as Portland, Oregon, where Saito’s family lived. 

He and Saito moved to Florida for a security job at the Four Seasons; soon after, he quit to get a diving degree. After he graduated in May 2019, they moved about an hour west of New Orleans, where he worked as an underwater welding apprentice on an oil rig in the Gulf of Mexico, Saito says.

Denman didn’t last five months. It might have been the hours; it might have been the loneliness. But it also might have been Goudreau. “Luke told me, when we first talked about it, probably early October, that he had a buddy that was in Washington, D.C., talking with the higher-ups, and they were working on some kind of plan to train Venezuelan nationals to repatriate their country,” says Braxton Smith, a longtime friend.

When Goudreau, Denman, and Berry boarded the plane to Colombia, they were escorted by Yacsy Alexandra Mirabal. The way Goudreau tells it, she was a patriot — willing to give up everything to see the liberation of her country — and, he claims, a financial backer who invested about $100,000 of her own money into the cause. 

Goudreau didn’t know at the time, however, that the plane was owned by Franklin Duran, a wealthy businessman with family ties to a Venezuelan-owned oil company, who was convicted in 2008 of operating as an illegal agent of the Venezuelan government. 

In fact, Mirabal had worked under Duran. In September, Colombian authorities, in partnership with the FBI, arrested her for being a Venezuelan agent trying to destabilize Colombia.

None of this bothers Goudreau today. I was struck by how deeply he still believes in the people who allegedly helped facilitate the coup, how forcefully he rejects any notion that Mirabal, Duran, or exiled Venezuelan Gen. Alcala might have had divided loyalties. 

Mirabal, he says, “has more courage than all of them, and so does the general. Let me tell you something about the general,” he continues. “That dude is beyond fucking repute. He’s an honorable man.”

Despite Goudreau’s unbreakable trust, the apparent ties to the Venezuelan government have raised questions about whether Maduro’s regime was secretly guiding the operation. A failed coup led by a bunch of Americans, after all, would be a propaganda win for Maduro, and an embarrassment for the U.S. There were other signs that the plan was not airtight. 

Starting in March, a critical arms shipment — allegedly facilitated by Mirabal — was apprehended in Colombia. Then, Venezuelan politicians went on television to point out the location of the rebel training camps in Colombia, and the AP published its story about Operation Gideon before the launch.

Goudreau acknowledges that the operation had been infiltrated, but maintains that the final push was done without the Maduro regime’s knowledge. “It would have been a lot different if it was truly compromised,” he says, even while acknowledging that six men were killed and almost all the rest were captured. 

In November, the Miami Herald published an article, based on an interview with one of Operation Gideon’s participants and data given to them by Goudreau, saying that one of the coup participants informed the Maduro regime of the coordinates of the landing. Goudreau strenuously disputes this, but also acknowledges he couldn’t know for sure.

Other evidence does point to Maduro’s forces lying in wait. The Maduro regime claimed that the six men from the smaller vessel were killed in a firefight as they landed ashore. 

However, Rolling Stone obtained an autopsy report containing graphic photos of the dead men that concludes none of the rebels’ weapons were found near the bodies, and that they were likely executed at close range, including one who may have been killed with a shot to the back of the head. An independent forensic pathologist, who commented on condition of anonymity, says that the evidence in the report supports that conclusion.

“The execution stuff? That’s very possible,” Goudreau says. “But would it alarm you to know that we basically executed a whole bunch of people in Iraq? If I was in that [situation] I probably would have shot everybody, too. That’s war. Look, the Geneva Convention doesn’t cover fucking enemy insurgents.”

Goudreau argues that it didn’t matter that Venezuela knew about the plan, as long as it didn’t know when or where they planned to attack. He even says he delayed Operation Gideon’s launch by a few days until after the AP story was published, as a way to catch Maduro off guard. (He also blames the AP reporter for the deaths of the six men because the story was published. When I tell him he’s contradicting himself, he just denies it.)

But in a tale so rife with espionage and intrigue, motives are never entirely clear. In July, Duran was arrested by Maduro’s police and charged with treason and financing terrorism. Before his arrest, he’d told reporters for The Washington Post that he did not knowingly have anything to do with the plot.

“This is a story where you have this criminal, corrupt regime that’s paying a lot of people off, and it’s hard to keep that machine running,” says Shifter, the Council on Foreign Relations member. “The segment of people who believe in the revolution today in Venezuela is negligible. So it all becomes transactional.”

The future for Denman and Berry is now uncertain. On August 7th, 2020, Venezuela’s attorney general announced that they were convicted on terrorism and arms-smuggling charges. They were sentenced to 20 years in prison. The following week, the government convicted another 17 Venezuelans. (The fate of the other 36 Venezuelans who weren’t killed in the raid is unknown.) 

Maduro maintains that the operation was backed by the U.S. government. Initial talks between Maduro and former New Mexico Gov. Bill Richardson, who negotiates the release of prisoners and hostages through his nonprofit, have so far gone nowhere, except to make sure Denman and Berry were being treated well. 

On October 16th, Denman and Berry had a Zoom call with their families where they appeared healthy and in good spirits. Their families set up a GoFundMe to help cover legal costs, but as of mid-November had raised less than half of its $50,000 goal.

On May 21st, Goudreau says, the FBI raided his Florida home, characterizing the action as an attempt on his life. “I took my shirt off. And they had no reason to death-by-cop me. But they knew my background. 

They knew I had a gun,” he says. And while the FBI recently started to return nearly $57,000 they had seized during the raid, Goudreau’s lawyer told him he is still under investigation.

“If the DOJ wants to go after me, they can indict me because I jaywalked and then put me in prison for 20 fucking years,” Goudreau says. “It’s rare in this world to have guys like Julian Assange, and it’s rare to have guys like Edward Snowden actually see something that’s fucked up, say, ‘You know what, that’s fucked up, I’m going to try to fix it.’ You know why it’s rare? It’s because these governments come together and they just destroy them.”

To this day, Goudreau still thinks he had a good chance at success. He blames a cadre of provocateurs, from double agents to former Silvercorp employees and the DEA and the FBI, for hobbling his plans. If he had the chance to do it again, he says he’d seek out a smaller circle of people he could trust.

“Had we succeeded, you really think that the Guaidó administration would have said, ‘That’s not us, we want nothing to do with this’? 

Do you think that Donald Trump would have said, ‘That wasn’t us’? 

Every motherfucker that I talked to would have said, ‘That was us! U.S.A., baby!’ 

They would have taken credit for all of it. And if you say it’s not true, you’re pretty naive.”

China Is National Security Threat No. 1

Resisting Beijing’s attempt to reshape and dominate the world is the challenge of our generation.

By John Ratcliffe

As Director of National Intelligence, I am entrusted with access to more intelligence than any member of the U.S. government other than the president. I oversee the intelligence agencies, and my office produces the President’s Daily Brief detailing the threats facing the country. 

If I could communicate one thing to the American people from this unique vantage point, it is that the People’s Republic of China poses the greatest threat to America today, and the greatest threat to democracy and freedom world-wide since World War II.

The intelligence is clear: Beijing intends to dominate the U.S. and the rest of the planet economically, militarily and technologically. Many of China’s major public initiatives and prominent companies offer only a layer of camouflage to the activities of the Chinese Communist Party.

I call its approach of economic espionage “rob, replicate and replace.” China robs U.S. companies of their intellectual property, replicates the technology, and then replaces the U.S. firms in the global marketplace.

Take Sinovel. In 2018 a federal jury found the Chinese wind-turbine manufacturer guilty of stealing trade secrets from American Superconductor. Penalties were imposed but the damage was done. The theft resulted in the U.S. company losing more than $1 billion in shareholder value and cutting 700 jobs. Today Sinovel sells wind turbines world-wide as if it built a legitimate business through ingenuity and hard work rather than theft.

The FBI frequently arrests Chinese nationals for stealing research-and-development secrets. Until the head of Harvard’s Chemistry Department was arrested earlier this year, China was allegedly paying him $50,000 a month as part of a plan to attract top scientists and reward them for stealing information. 

The professor has pleaded not guilty to making false statements to U.S. authorities. 

Three scientists were ousted in 2019 from MD Anderson Cancer Center in Houston over concerns about China’s theft of cancer research. The U.S. government estimates that China’s intellectual-property theft costs America as much as $500 billion a year, or between $4,000 and $6,000 per U.S. household.

China also steals sensitive U.S. defense technology to fuel President Xi Jinping’s aggressive plan to make China the world’s foremost military power. U.S. intelligence shows that China has even conducted human testing on members of the People’s Liberation Army in hope of developing soldiers with biologically enhanced capabilities. There are no ethical boundaries to Beijing’s pursuit of power.

China is also developing world-class capabilities in emerging technologies. Its intelligence services use their access to tech firms such as Huawei to enable malicious activities, including the introduction of vulnerabilities into software and equipment. Huawei and other Chinese firms deny this, but China’s efforts to dominate 5G telecommunications will only increase Beijing’s opportunities to collect intelligence, disrupt communications and threaten user privacy world-wide. I have personally told U.S. allies that using such Chinese-owned technology will severely limit America’s ability to share vital intelligence with them.

China already suppresses U.S. web content that threatens the Communist Party’s ideological control, and it is developing offensive cyber capabilities against the U.S. homeland. This year China engaged in a massive influence campaign that included targeting several dozen members of Congress and congressional aides.

Consider this scenario: A Chinese-owned manufacturing facility in the U.S. employs several thousand Americans. One day, the plant’s union leader is approached by a representative of the Chinese firm. The businessman explains that the local congresswoman is taking a hard-line position on legislation that runs counter to Beijing’s interests—even though it has nothing to do with the industry the company is involved in—and says the union leader must urge her to shift positions or the plant and all its jobs will soon be gone.

The union leader contacts his congresswoman and indicates that his members won’t support her re-election without a change in position. He tells himself he’s protecting his members, but in that moment he’s doing China’s bidding, and the congresswoman is being influenced by China, whether she realizes it or not.

Our intelligence shows that Beijing regularly directs this type of influence operation in the U.S. I briefed the House and Senate Intelligence committees that China is targeting members of Congress with six times the frequency of Russia and 12 times the frequency of Iran.

To address these threats and more, I have shifted resources inside the $85 billion annual intelligence budget to increase the focus on China. This shift must continue to ensure U.S. intelligence has the resources it needs to give policy makers unvarnished insights into China’s intentions and activities.

Within intelligence agencies, a healthy debate and shift in thinking is already under way. For the talented intelligence analysts and operators who came up during the Cold War, the Soviet Union and Russia have always been the focus. For others who rose through the ranks at the turn of this century, counterterrorism has been top of mind. But today we must look with clear eyes at the facts in front of us, which make plain that China should be America’s primary national security focus going forward.

Other nations must understand this is true for them as well. The world is being presented a choice between two wholly incompatible ideologies. China’s leaders seek to subordinate the rights of the individual to the will of the Communist Party. They exert government control over companies and subvert the privacy and freedom of their citizens with an authoritarian surveillance state.

We shouldn’t assume that Beijing’s efforts to drag the world back into the dark will fail just because the forces of good have triumphed before in modern times. China believes that a global order without it at the top is a historical aberration. It aims to change that and reverse the spread of liberty around the world.

Beijing is preparing for an open-ended period of confrontation with the U.S. Washington should also be prepared. Leaders must work across partisan divides to understand the threat, speak about it openly, and take action to address it.

This is our once-in-a-generation challenge. Americans have always risen to the moment, from defeating the scourge of fascism to bringing down the Iron Curtain. This generation will be judged by its response to China’s effort to reshape the world in its own image and replace America as the dominant superpower. The intelligence is clear. Our response must be as well.

Mr. Ratcliffe is U.S. director of national intelligence.

Free exchange

Will central-bank digital currencies break the banking system?

Perhaps. But that might not be so bad

Imagine it is 2035 and a financial crisis is raging. Credit is drying up; banks’ share prices look like ski slopes and every news report features sweaty traders in shirtsleeves tugging at their collars. You log on to your banking app and peer anxiously at your savings. 

You could transfer them to another bank, but none seems safe. Fuelling a traditional bank run by withdrawing physical banknotes, even if there were any branches left, would be tragically passé. Luckily, there is a new escape route. 

At the touch of a button, you can move your funds into a central-bank digital currency (CBCD), a government-issued virtual store of value that is completely safe.

This is one scenario worrying economists working on CBCDs (of whom there are many: a survey at the start of the year found that more than 80% of central banks were studying the subject). 

There are many potential advantages to publicly backed digital currencies. They might make payments easier. They might “democratise” central-bank money, the part of the central bank’s balance-sheet which, unlike physical cash, only banks can access now. 

And they would reduce the risk that cryptocurrencies replace government tender; bitcoin has been on a tear lately, and Facebook’s digital coin—which on December 1st changed its name from “Libra” to “Diem”—will reportedly launch in January. But wouldn’t CBCDs also make it dangerously easy to flee the banks in times of stress?

It is not just in a crisis that cbdcs might compete with banks. They would be attractive assets to hold in normal times, too, especially if, like today’s central-bank money, they were a tool of monetary policy and therefore paid interest (assuming that rates are solidly positive again by 2035). 

Thus, commercial banks might be drained of the deposits with which they today fund their lending. Disintermediation of the banking system might make impossible the financial magic that allows households to pair long-dated mortgage borrowing with instantaneously redeemable deposits.

The budding architects of CBCDs are looking for ways round the problem. One option, which has been suggested by researchers at the Bank of England and the European Central Bank, is to limit the amount that can be held in a CBCD. 

Another idea, pointed out in a recent paper by Sarah Allen of the Initiative for Cryptocurrencies and Contracts, a research group, and 12 co-authors, is to rely on banks to manage the public’s holdings of CBCDs, much as many people rely on “wallets” to hold their cryptocurrency (though if the public could not hold CBCDs directly, it would not be much of an improvement on existing central-bank digital money).

The problem of disrupting the banks may be avoidable with clever engineering. But it would be wise to consider whether it even needs avoiding in the first place. For those willing to entertain futuristic ideas, CBCDs may offer an opportunity to rethink the financial system from the ground up.

Several research papers, as summarised by Francesca Carapella and Jean Flemming of the Federal Reserve in a recent review, argue that central banks could preserve maturity transformation by reordering the chain of funding. Today, households deposit money at banks, which park funds at the central bank. 

If people prefer CBDCs, however, the central bank could in effect pass their funds on to banks by lending to them at its policy interest rate. “The issuance of CBDC would simply render the central bank’s implicit lender-of-last-resort guarantee explicit,” wrote Markus Brunnermeier of Princeton University and Dirk Niepelt of Study Centre Gerzensee in a paper in 2019. Explicit and, perhaps, in constant use.

More central-bank lending might sound like an unwarranted expansion of government. 

But today’s market for deposits is hardly laissez-faire. It is not as if households inspect banks’ loan books before entrusting them with cash; they rely on the backstop of government-provided deposit insurance. 

And deposits are increasingly concentrated in big banks. (In fact, a recent working paper by researchers of the Bank of Canada finds that, by increasing competition for deposits, a cbdc could increase bank lending and GDP.)

The real problem with central-bank financing of banks is the risk of default. To avoid picking winners, policymakers would probably need to fund any institution that can provide satisfactory collateral. 

Determining which loans and other assets qualify is uncomfortable work. But central banks already make such evaluations in times of crisis. 

The understanding that they will accept only high-quality assets, plus minimum equity requirements to protect creditors, is supposed to prevent moral hazard.

Carpe diem

Another idea is to make banks fund themselves with much more equity, rather than rely on deposits. That would make them look more like today’s mutual funds or other unleveraged investment vehicles. 

This is precisely what economists such as John Cochrane of Stanford University and Laurence Kotlikoff of Boston University have long advocated: that lenders should shed their dependence on flighty sources of financing, and that households’ funds should instead be parked in completely safe assets. For Mr Cochrane, CBDCs are an opportunity to pursue such “narrow banking”.

To fear disintermediation at the hands of CBDCs is to believe that narrow banking would starve the economy of something it needs, and that today’s “fractional-reserve” system must be preserved. 

But banks are not necessary for lending and borrowing to take place—in America a high share of this activity takes place in capital markets instead.

If bank credit must be kept flowing, governments could subsidise it directly—making explicit what today’s architecture obscures. Better that than suppressing useful technological innovations.

Making subsidies explicit, however, is not always comfortable for the beneficiaries—or for regulators; obvious support attracts more public opprobrium. 

The real risk of CBDCs to the financial system may be that they eventually precipitate a new kind of run: on the idea that banks need to exist at all.