The U.S. government is adopting a FedNow pilot program for which certification will begin in April and operation will start in July. This isn’t a centralized bank digital currency (CBDC) per se, but it is a streamlined system that will allow instant payments between businesses and individuals.
This will be a precursor to a digital dollar.
There are many arguments for CBDCs. In fact, over 90% of central banks around the world have created a CBDC, are testing one, or are looking into it.
Friction-Free
A CBDC is a digital form of fiat money issued by a central bank and designed to be used as legal tender. It is an electronic form of currency that is backed by a government and is not dependent on any third-party intermediaries such as commercial banks.
The government is going to sell you on CBDCs using the following arguments:
- Increased financial inclusion: CBDCs have the potential to bring unbanked populations into the financial system. They can provide a secure and low-cost alternative to traditional banking services, allowing individuals who do not have access to traditional banking services to participate in the financial system. Illegal immigrants may or may not be a part of it.
- Reduced transaction costs: CBDCs can eliminate the need for intermediaries such as banks, which can significantly reduce transaction costs. This could benefit small businesses, which often face high transaction fees, and could increase competition in the financial sector.
- Improved monetary policy: CBDCs can give central banks greater control over the money supply and enable them to implement more effective monetary policies. This is because CBDCs can provide central banks with real-time data on the velocity and direction of money flows, which can be used to fine-tune monetary policies.
- Enhanced security: CBDCs can provide a more secure alternative to cash transactions. Digital currencies can use advanced encryption technology to ensure that transactions are secure and cannot be easily counterfeited.
Right now, we have a banking system that has evolved step by step from the cash system of the 1950s. When you buy something today, it creates a claim on your bank account. Depending on the transaction, it can go through PayPal or Visa and then the merchant's bank as well as your own bank. This is all overseen by a third-party bank to make sure everything is aboveboard.
This process can take up to three days and create a lot of fees along the way.
With a CBDC, we'll have a few large, connected banks like Bank of America working with the Federal Reserve to control money supply down to the penny. The Fed will know where money moves and when. There will be a lot of big money lobbyists who will want to make sure they still get their fees.
The Fed will like CBDCs because they will be a better tool than quantitative easing and tightening. If the Fed wants to encourage spending, it could airdrop money into your bank account, and if it wanted to discourage saving, it could add expiration dates, which is what China did.
Use it or lose it. It's financial enslavement with fewer steps.
Bureaucrats and law enforcement will not be able to resist the temptation to control everything they can using the tired old canard: “Well, if you have nothing to hide, it shouldn’t bother you.” Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
The IRS will like it because it will know how much you owe and could debit or refund money to your personalized digital account.
The downsides of CBDCs include:
- Privacy concerns: The use of CBDCs could enable governments to monitor transactions, which could raise concerns about privacy and civil liberties. There is a risk that CBDCs could be used to implement surveillance and control over citizens.
- Disruption to the financial sector: CBDCs could disrupt the financial sector by reducing the role of banks and other financial intermediaries. This could lead to job losses in the sector and reduce the diversity of financial services available.
- Technical challenges: CBDCs face several technical challenges, including scalability, interoperability, and cybersecurity. These challenges must be addressed before CBDCs can be adopted on a large scale.
- Operational risks: CBDCs also face operational risks, such as system failures and cyberattacks. These risks could lead to a loss of funds and damage to central banks' reputations.
Surveillance State
You will have a personal digital ID tied to a CBDC account, and it will have some patriotic name like Freedom Funds. If the government or the party in charge at the moment doesn't like what you are buying, it could flip a switch and your bank account will show zero.
More likely it will have some AI program flip the switch and it will be hell to find a human to unflip it.
All governments can and do abuse power. On April 5, 1933, the federal government required everyone to either give up their gold or face 10 years in prison (or pay a $10,000 fine, which amounts to $180,000 today).
Under President Reagan, the government decided that local police could confiscate your cash or property if they suspected you of a crime, and you had to prove your innocence to get it back. Under President Obama, the IRS went after conservative groups and then formally apologized in 2012.
The list goes on and on.
The bottom line is that CBDCs will be an assault on your freedom and a direct attack on the Fourth Amendment. That said, the fear of falling behind countries like Japan or China as well as the benefit to people like Jamie Dimon and other elites mean the central bank digital dollar is inevitable.
You can suffer, or you can protect yourself and profit. Check out our free research presentation here.
All the best,
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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