Warning: Physical Cash Will Be Mostly Gone by the End of the Decade

By Juan Villaverde and Bruce Ng on November 18, 2020

Last month, the People’s Bank of China gave its new digital yuan a trial run in Shenzhen, the border city adjacent to Hong Kong. It was a huge success.

More than 2 million people queued up for a chance to become one of just 50,000 trial users.

This is the first major central bank digital currency (CBDC) released in the real world. But it will not be the last. The Bank of France and the European Central Bank are both racing to create a digital euro.

The International Monetary Fund (IMF) recently held a conference on how CBDCs could speed up and lower the cost of cross-border payments.

The U.S. Federal Reserve has also been mulling a digital dollar. In fact, legislation to establish and implement it has already been proposed in Congress.

So, in the words of the prophet Daniel: The writing is on the wall.

Why Digital Versions of Fiat Money
Will Be the Enemies of Democracy

CBDCs are being sold to the public as a tech upgrade to make payments and transfers faster and free of transaction costs.

For example, citizens would each have their own digital accounts at the central bank. To pay a bill, you would just use your smartphone to transfer CBDCs from your account to the account of whoever you owe.

Indeed, this is very much how online access to existing bank accounts already works. Which explains why Shenzhen residents so readily embraced the digital yuan.

But once CBDCs roll out nationwide, privately-owned commercial banks are going to face a not-so-distant future in which they could be effectively out of business. Because most transactions would take place between accounts at the central bank, making them unnecessary.

However, this is only part of a more ominous story. Some countries will be tempted to use CBDCs to create a system like this:

□   Tax policy is automated. The central bank’s computer decides you owe taxes, and those funds instantly vanish from your account. With or without your consent!

□   Money is fully controlled by unelected bureaucrats. Not just monetary policy, but money itself — who has access to it and how much — is determined not by politicians answerable to voters, but by unelected central bank officials.

Consider this: Under a CBDC regime, debates like the one in Washington over whether to provide more post-election pandemic relief could become irrelevant.

Why? Because having direct access to the accounts of every citizen would effectively put the Federal Reserve — not Congress — in charge of U.S. fiscal policy.

And mark our words, a lot of politicians would be OK with this. Because they would much rather have voters get mad at the Fed (instead of them) when onerous and unwelcomed taxes inevitably come due.

CBDCs Are More ‘Efficient’ —
Much like Monarchies Are More
‘Efficient’ than Democracies

Under a monarchy, you can go from being a prince to a peasant merely by incurring the wrath of the king. In a CBDC world, similar patterns could emerge.

Offend the wrong person, and you find yourself destitute by decree — that is, denied all access to money — at the flick of a switch.

The choice could not be clearer. Do you want autocratic rule and top-down decision-making? Or freedom, democracy and accountability on the part of the ruling class?

Little by little, abuse by abuse, people today are going to have to relearn an age-old lesson: Bad things happen when too few people have too much power.

If America’s Founding Fathers were alive today, they would undoubtedly champion Bitcoin (BTC Tech/Adoption Grade “A-”) and other crypto assets — as a way to challenge the all-encompassing power of an unelected technocratic bureaucracy.

If you value your financial freedom going forward, cryptocurrencies might soon be your only choices.

But no matter what happens, the message is clear. BEWARE OF CENTRAL BANK DIGITAL CURRENCIES. You’re far better off putting your trust in top Weiss-rated cryptos instead.

Best,

Juan and Bruce

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