Central bank digital currencies (CBDCs) are coming fast, and you need to be prepared for them because they’ll mark a major victory in the war against cash — and against your personal privacy.
You’ll see why today.
As the name implies, central bank digital currencies are digital, existing exclusively in electronic form. They’re not physical at all. Central banks would control them.
But it’s important to understand they’re not new currencies. They’re just digital forms of existing currencies. So the central bank digital currency of the European Central Bank will still be the euro. The central bank digital currency of the Fed will be the dollar. The Chinese yuan will be a digital yuan.
They’ll just exist in 100% digital form. A lot of people say, “Wait a second. Isn’t that a cryptocurrency?” The answer is it’s not.
Digital, but Not Crypto
Cryptocurrencies are different in some important respects. Number one, cryptocurrencies operate on a blockchain, or a digital ledger. It’s a way of keeping track of every transaction involving a particular cryptocurrency like Bitcoin.
A central bank digital currency does not have to be on a blockchain. It could be, but it probably won’t be. So it is digital, it is encrypted, but it’s not a blockchain and it’s not a cryptocurrency.
The other thing about cryptocurrencies is that they’re not issued by any central authority. They’re created mathematically. But a central bank digital currency is issued by a central authority. It’ll come from the Federal Reserve, or the European Central Bank, or the People’s Bank of China or other central bank institutions.
So CBDCs and cryptocurrencies aren’t the same.
Slowly, Then Quickly
The idea of CBDCs has gained momentum over the past few years, and they’re actually being implemented in China.
If you had asked me about CBDCs two years ago, I would have said, “Yes, China’s rolling them out. Europe is coming along not far behind. The U.S. was still maybe three or four years away because the U.S. is taking a much more studious approach.”
But that’s changed under Biden, who has fast-tracked their development. We’ve moved fairly quickly from what I would call the research phase to an implementation phase. The Federal Reserve is working with MIT to work out the technological kinks, which shouldn’t take long.
The Bahamas actually has a central bank digital currency, so if they can figure it out the U.S. certainly can.
How CBDCs Will Be Promoted
What are the advantages of a central bank digital currency? Well, the advantages are speed, cost, security and ease of use.
Assume you buy a candy bar at a convenience store. You pay for it with a credit card, which begins a payment process involving maybe five parties including the merchant, the credit card company, the bank and an intermediary called a merchant acquirer (no need to list the details here, but it’s complicated).
Ultimately the bank that issues your credit card sends you a bill and you pay it. You also pay a fee, maybe 3%, all to buy a candy bar. But with a central bank digital currency, you could simply pay for the candy bar with an account you have at the Fed.
You would disintermediate the merchant acquirer, the banks and the credit card company. It would eliminate the fees we currently face.
In a nutshell, the payment system will be faster, cheaper, easier, more streamlined and more secure.
The Real Reasons They’re Pushing CBDCs
The question is why are they doing this? Well, the banks and the government will tell you that it’s cheaper, faster and safer, so it makes sense. And that’s true, as far as it goes, but there are a lot of hidden agendas here.
The first one is to eliminate cash. If you didn’t like the central bank digital currency system for privacy reasons, you might say, “Hey, I feel like I’m under surveillance. This is intrusive. I just don’t trust it. Where’s my alternative?”
Particularly if they eliminate the traditional credit card payment system, you might buy your candy bar with cash. But if you’re the government and you want the central bank digital currency to succeed, you have to eliminate cash because it’s your competition.
The government hates cash because it’s not traceable. If you spend it, they don’t know that you spent it or how you spent it. They can’t put you under surveillance with cash.
Negative Interest Rates
The other thing the government wants is the ability to impose negative interest rates. Instead of earning interest on your money in the bank, you’d be charged to keep it there. Cash stands in the way of negative interest rates because cash doesn’t have a negative interest rate.
Assume you bury $100,000 in cash in your backyard. You come back a year later, you still have $100,000. You might not earn any interest on your money, but at least the government can’t take it away. But if all your money is in digital form within the banking system, they can impose negative interest rates on it.
The government wants to use the banking system for a lot of other things. They might want to freeze your account, they might want to seize your assets, they might also want to put an expiration date on your money.
Imagine you get paid and the government tells you, “That money is going to evaporate or disappear if you don’t spend it in the next six months.” How’s that for a stimulus program?
So the push for central bank digital currencies, which has a full head of steam, should be understood in the context of eliminating cash.
The Total Surveillance State
CBDCs also have enormous political implications, including the culmination of the total surveillance state. This is why China did it. And don’t believe anyone who tells you that the United States won’t do it.
They’ll start out saying, “Oh, it’s cheaper than Mastercard. Sign up here.” They won’t give you a chance. They’ll force you to sign up, but what they’re doing is putting you under a new level of surveillance. They have you at the point of purchase.
What if you’re in a bookstore and buy a book written by Donald Trump or a book by some author who supports Trump, Ron DeSantis, Rand Paul or any of Biden’s political enemies?
Now they can tag you and potentially label you a domestic terrorist or some such. And what if you make a political contribution to a candidate the administration doesn’t like?
Well, now you could really be in trouble. You bought a pro-Trump book. You gave money to a pro-Trump political candidate. You’re on a list. And they know this because of the payment system.
This is the point.
Biden’s Most Enduring Legacy?
Obviously, they can have an FBI agent follow you around and see what you bought at the book counter, but they don’t have enough FBI agents for that. But if they’re using central bank digital currencies in an account that identifies you, then they can pigeonhole you.
And what about these 87,000 IRS agents they’re hiring? Maybe your name will pop up on one of their lists and they’ll audit you.
So I would caution you that CBDCs aren’t just a cheaper, better, faster payment system, although they may be and that is how they’ll be sold. They will also be used to eliminate cash, impose negative interest rates and track your purchases. They can even freeze your account.
I call the dollar version of the CBDC Biden Bucks because Joe Biden will prove to have been responsible for implementing CBDCs at a very quick tempo in the U.S.
They could one day end up as his most enduring legacy.