A Bad Idea

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Central Bank Digital Currency (CBDC)

The Bank of England (BoE) and the UK Treasury believe the UK will need to create a Central Bank Digital Currency (CBDC) later this decade, according to media sources citing unreleased government research. It’s a shame that the same publications didn’t ask the most basic questions regarding this official study, including ‘why?’

Maybe it’s because the UK government believes it’s being left behind. The central bank of the United Arab Emirates (UAE) is the most recent to announce plans to issue a CBDC. Last December, India’s central bank launched a pilot test for its own CBDC, the ‘e-Rupee,’ and now the country’s largest retail chain, Reliance Retail, has announced that it will begin accepting retail payments in the e-Rupee. According to the Atlantic Council, 114 countries (representing more than 95% of global GDP) are “exploring” a CBDC, and all G7 countries have now “gone into the development stage of a CBDC” as of last December.

Nevertheless, in their haste, central bankers (and their governments) appear to have overlooked the most fundamental question: what problem are CBDCs attempting to solve?

Currency Control

Some argue that the apparent inexorable reduction in the usage of cash is driving central banks’ rush to CBDCs. In the United Kingdom, tangible money accounted for 60% of transactions in 2008, but it now accounts for only 15%. One source indicates that the use of cash at point-of-sale (POS) transactions would drop to just 10% worldwide by the end of 2025.

Yet, simply because the use of cash is rapidly falling does not imply anything about a CBDC. A deeper explanation is that central banks’ interest in CBDCs strongly tracks the emergence of private cryptocurrencies, as noted by the Bank for International Settlements in a CBDC report published in 2020. Cryptocurrencies have recently disappointed many investors, but they are not going away. Its existence, and the endurance of some (like Bitcoin), is a direct danger to governments’ and central banks’ control over money, which is their most potent power.

According to today’s whitepaper, Australia’s CBDC will be known as eAUD. CBDCs differ from other digital currencies such as Bitcoin in that they are centralised. Bitcoin is decentralised, which means that no single entity controls it. A digital currency like the AUD or the Pound (dubbed ‘Britcoin’) issued by the BoE would be stored in ‘wallets’ on smartphones or on specially engineered smart cards offered by private enterprises, which may be commercial banks or technological groups. The BoE would operate the central database, with the potential to monitor every transaction.

“In England, wallet operators would have access to the Bank of England’s payments infrastructure, including a core ledger, to supply customers with digital pounds… Operators of digital wallets would be required to keep user data secure. The BoE would receive only anonymized information on transactions employing digital sterling”. Per wallet, a limit of £10,000 to £20,000 would be permitted.

Too Big to Sail

Money is far too crucial to be left in the hands of central bankers, particularly central bank technocrats, or their political masters. We have lived through many years in which central bankers have failed to anticipate (let alone prevent) the worst inflation in forty years while having previously presided over a large (and super-inflationary) increase in the money supply in 2020-21. They are now urgently attempting to regain lost ground (and credibility) by hiking interest rates.

And yet, our societies appear to be drifting towards the implementation of a new monetary order, which is being ushered in by central banking technocrats; this could be a much bigger change than the decision to remain in or leave the European Union, but there is no indication that the UK will be given the opportunity to vote on CBDCs. As in the UK, the United States and other countries appear enthralled by the technical possibilities that promise to usher CBDCs into existence.

If fiat money – money backed by nothing but politicians’ promises – was a bad concept, the ramifications of a CBDC are positively dystopian.

If that seems like a ridiculous claim, go no further than China, the current leader in CBDC development and use. In 2020, the digital Yuan (e-CNY) was first tested in numerous Chinese provinces. In 2022, China’s e-CNY transactions surpassed 100 billion ($14 billion), representing a minor share of total trades but expanding steadily. China’s CBDC is ideal for its totalitarian authorities. It enables them to monitor and control all residents’ wages, savings, and expenditures.

The e-CNY is an ideal complement to China’s social credit system, a legal framework that assesses the ‘trustworthiness’ of individuals and organisations. According to one analysis, the system’s final “end-state” is a single record for people, businesses, and the government that can be monitored in real-time. According to the same source, 23 million Chinese were barred from travelling in 2019 due to their poor social credit rating. Cheating in online video games can damage your score.

We are accustomed to living in democratic nations with liberal rules and tolerance for various types of behaviour. Such a nightmarish scenario appears unthinkable in the United Kingdom, the United States, or other democracies. Conversely, a CBDC will extend government/central bank power over what we currently regard as a fundamentally personal concern – our money.

There is a wealth of comprehensive technical information about CBDCs available on the internet, but very little serious, non-inflammatory, layman-friendly discussion of their downsides. The technocrats have already won the debate; their child is far too large to sail.

It allows us to utilise gold as money outside the dominant monetary system. Gold is not dependent on government or central bank commitments. Furthermore, keeping gold has provided valuable protection throughout the present inflationary period; its return in 2022 was a meagre 0.4% in US Dollar terms but a stunning 14.4% in Japanese JPY. Regarding purchasing power, we always present an honest discourse between gold, crypto, and fiat currencies.

While we feel that gold is the fairest and most trustworthy currency globally, we must emphasise that it is not without danger. While the price of gold has steadily increased through time, its value might fall, which implies its purchasing power can also diminish.

Credit to Glint at (Link)

Disclaimer
PWD Media Owners or its employees are not registered investment advisors and do not provide financial advice. Comments on this page are only an expression of opinion. While we attempt to illustrate the potential benefits of investing in precious metals, remarks, links, or advertising on this website should not be interpreted as advice to purchase or sell a commodity at any time. While PWD Media makes every effort to ensure that all of our comments are genuine and correct, we employ third-party data and rely on our reputable sources’ credibility. Before making any investment decisions, PWD Media suggests you contact a knowledgeable investment advisor.

Securities disclosure.: I, Beat Süess, have no direct investment interests in any of the companies mentioned in this article.

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Latest Update on February 17, 2023

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