Central Bank Digital Currencies

Some news of critical importance that you may have missed: China has released a Central Bank Digital Currency as a trial in a city of 150,000. Europe is developing a CBDC, led by Christine LaGarde. Jerome Powell spoke this morning on the US investigating CBDCs to the International Monetary Fund.

The upside: The world is in dire need of stimulus and every central bank in the world is printing currency like mad to keep their economies working. The current system is incapable of distributing money to where it is needed fast enough in a borderless fashion. A central bank digital currency or a global digital currency would fix that issue as well as improving financial inclusion and automating financial services or taxation.

The downside: governments will not allow illegal transactions to occur, meaning every transaction will be surveilled. Your financial behavior will be actively managed through economic incentives without the usual intermediaries i.e. national or regional banks. You will not be able to vote on such a system, just as you are not able to vote for members of the federal reserve or leaders of the IMF. There is no mechanism for a global democratic process nor are there incentives for such a vote. A CBDC allows the potential for fine-grained control of every economic participant with potentially zero checks or balances on that power. That includes individualized interest rates (including positive and negative rates) and sets the stage for corruption by a powerful few.

There are two systems that I’m aware of that are immune to a move to CBDCs. Physical Gold and Bitcoin. Gold has been a store of value for millennia, but it can be seized forcibly and gold is not capable of resolving the global digital payment system needs. Bitcoin is an already functioning and reliable financial network that has no centralized leader that controls it. It is controlled by consensus through the use of computing power and energy on a global scale. It cannot be stopped.