CBDC's a plague for the 21st century part 1

Why CBDCs Threaten Financial Freedom

Part 2 →

Digital Money

Did you know that 93% of our current money supply is digital ¹ (credit card payments, Venmo, online banking transfers, etc.) with only 7% of it in cash and coin? Times have changed! Even Grandma mostly uses digital payment methods and doesn’t even know it. But the current banking and monetary system is riddled with problems like:

• High fees for using services

• Low-interest rates for savers

• Bank failures like SVB ²

• Slow and expensive international purchases and wire transfers

• Counterfeit money

• 4.5% of US households are unbanked ³ and lack financial services

• High inflation

This is why Bitcoin was made and is also why many governments are working on creating a Central Bank Digital Currency (CBDC).

A CBDC is created by a central bank like the Federal Reserve and the money is issued, regulated, and tracked on a digital ledger. Many countries (but not all) are working on a CBDC and are all set up differently depending on their laws, customs, and cultures.

Some CBDCs are only for financial institutions like FEDNOW ⁴ to help make faster and cheaper transactions between banks, governments, and other major financial firms. There are also retail CBDCs like the Digital Yuan ⁵ that are used for everyday purchases like buying bread at the grocery store. Users have a digital wallet that connects directly to the central bank that manages their funds.

You probably already heard about these things and were told it’s no big deal.

When politicians and the media act like something isn’t a big deal that’s when you need to pay attention.

The decision to implement CBDCs could be our country’s most important decision in the next twenty years.

Why?

It will determine if we are free or slave, rich or poor. Heaven or Hell, which do you want?

I am mostly concerned with CBDCs for retail usage and less concerned about institutions like banks and governments. I still find big governments and businesses using CBDCs problematic but it’s less a clear and present danger than it being forced on the rest of the population. However, I do see it as a way for “the camel to get his nose under the tent.” ⁶

The Advantages of CBDCs

CBDCs do have real advantages and I think it’s important to address these before I point out the disadvantages. A well-run CBDC could be a wonderful thing! The advantage includes:

• Banking the unbanked. The Federal Reserve could choose to waive bank fees and minimums that keep people from using banks.

• Eliminate transaction fees. Credit card fees are typically between 1-3% per transaction. ⁷ The customer doesn’t usually notice it because the merchant pays but merchants find a way to make their money back. Central banks could charge much lower fees especially if they service the whole country.

• Faster transactions. Ever check your bank account and notice that your payments tend to “pend” for a day before going through? This would be eliminated.

• Reduce Counterfeit risk. Cryptography could be used to protect a digital dollar from counterfeits. The methods used to prevent dollar bills from getting copied will never match cryptographic security.

• Automate taxation. Since all payments received would go through your digital dollar account it would be easy to automate your taxes and not deal with April 15th headaches.

• Biometric payments. You could associate your digital account with your fingerprint and never need to carry a wallet. Instead, just scan your finger to make a payment. very convenient!

• Financial crime prevention. Since all of the transactions are on one database controlled by the central bank it would be easy to find out who the bad guys are. Terrorist organizations using the CBDC would easily be shut down by turning off their bank account.

• Monetary policy. It would be easier for the Federal Reserve to track the economy and change how much money is in the system. It would be easier to control inflation or deflation with this method.

Some of this sounds good. Who doesn’t want to make their life simpler, cheaper, and faster?

What could go wrong?

There are so many ways this could go wrong but let me just give a few scenarios that could happen.

Scenario 1

A President gets “elected” who has no regard for the rule of law. Many people speak out against this leader and fund opposition to make certain he loses the next election. With the help of the CBDC, this new President can track who donates to his competition and is also able to turn off their bank accounts with the press of a single button. The new President hits the button and turns off the bank accounts of everyone associated with the opposition party. A banana republic is born and chaos ensues.

Scenario 2

Since the purchases and activities of businesses and individuals can be tracked it would be easy to put in place a social credit score. China has already done this with their CBDC! In China they will punish people with a low social credit score with:

• Travel bans

• School bans

• Employment restriction

• Additional government audits and scrutiny

• Public shaming

Many groups would like to punish people for purchasing products that pollute too much, donating to the wrong nonprofit, buying certain books, and associating with the wrong people. A CBDC makes social credit easy to do because your purchases are tracked and the Central Bank can limit or suspend spending and receiving of money with the push of a button. This could easily lead to a “soft” dictatorship that radically strips away the freedom of those living under the social credit system.

Scenario 3

A CBDC makes central planning much easier to attempt. Limits could be put in place for how many products you can buy (even if you have the money) and the extra money could easily be given for purchasing government-favored products. The history of central planning is littered with failure and dead bodies but those who favor it will argue they needed better technology. CBDC allows trying this mad ideology all over again. The technology will just help the central planners fail faster and wreck the economy. Millions of people would stave and fifty years of damage would be done in ten years.

Conclusion

There are many more things that could go wrong with a CBDC but I chose three obvious and extreme examples to make it clear that it gives politicians, economists, and civil servants too much power over the American people. While the US Constitution is supposed to protect us from government overreach I don’t think the checks and balances could keep up with the constantly changing technology that would be in the fingerprints of well-meaning (or not so well-meaning) leaders. Court processes can take years to go through while a government bureaucracy strips away the financial right of the American people. A lot of damage can be done in a short amount of time when politicians have unfettered access to our money.

A CBDC is like the Genie in the bottle once you let him out you can never put him back in again. The best way we can prevent government abuse from CBDC is not to allow it to exist in the first place. Stay tuned for my next article where I show how it would likely get implemented and laws that we could demand to stop it. We can stop CBDCs!

---

Final Word

Thanks for tuning in!

Totalitarianism in power invariably replaces all first-rate talents, regardless of their sympathies, with those crackpots and fools whose lack of intelligence and creativity is still the best guarantee of their loyalty.
― Hannah Arendt, The Origins of Totalitarianism

DISCLAIMER: This article is for informational and educational purposes only and should not be construed as financial, investment, tax, or legal advice. The author is not a licensed financial advisor, and nothing in this article constitutes a recommendation to buy, sell, or hold any cryptocurrency, gold, or other asset. Cryptocurrency investments are highly volatile and risky, and you could lose all of your invested capital. Past performance does not guarantee future results. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author operates a paid cryptocurrency education course and may hold positions in assets discussed.

1. https://www.newsbtc.com/news/bitcoin/around-8-money-supply-exists-cash-rest-just-faith-based-currency/#:~:text=It%20is%20not%20surprising%20to,is%20primarily%20electronic%20these%20days.

2. https://www.omfif.org/2023/04/silicon-valley-bank-and-the-double-edged-sword-of-digital-efficiency/

3. https://www.fdic.gov/analysis/household-survey/index.html#:~:text=An%20estimated%204.5%20percent%20of,the%20survey%20began%20in%202009.

4. https://www.federalreserve.gov/newsevents/pressreleases/other20230315a.htm

5. https://www.cnn.com/2023/04/24/economy/china-digital-yuan-government-salary-intl-hnk/index.html

6. https://www.bedtimeshortstories.com/the-arab-and-the-camel

7. https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/#:~:text=Credit%20card%20processing%20fees%20for%20merchants%20equal%20approximately%201.3%25%20to,(MCC)%20of%20the%20business.