#fiatcurrency

The much touted Biden order on crypto also has the government thinking about issuing a digital dollar through the Fed. Is that a good idea or bad idea?

Let’s take a look at the pros.

First, it would be much easier to create a new dollar virtually rather than printing it and may be more environmentally friendly, one of the hot button topics today. Secondly, with an app the government could easily access people who do not have a bank account and put their benefit payment into their digital wallet allowing for easier implementation of policy. Third, it removes the default risk of intermediary banks given the interaction is with the central bank directly. Finally, having a CBDC (central bank digital currency) will make it more cost effective to transfer money, especially internationally.

While that sounds good, there are a number of draw backs. First, and foremost, are privacy concerns. With the central bank in charge, they (and your government) would have complete control over who can access the blockchain. Say you’re someone in Canada supporting the truckers, the central bank could simply not allow you to access the blockchain to make a donation. The second issue relates to the devaluation of the CBDC. There is no difference other than form between the fiat currency notes and the CBDC. The central bank could simply charge negative interest rates on all of the deposits into the central bank reducing the value of your holdings everyday. This inflation helps the issuing government continuing its disastrous spending levels of today. The third issue would be the destruction of the banking industry. If the central banks are working directly with consumers, I can’t see a rationale reason for an intermediary other than raising the cost of a transaction. The disruption of the financial services industry at the hands of its regulators is the reason the market needs to make this decision and not the government and the hacks at its central bank.

All in all, a CBDC is not the same as a cryptocurrency but is a fiat currency in a digital/controlled world. With the way the government’s of the world have acted during COVID and the Canadian freedom protest, privacy should be the upmost concern. The continued war on cash should show you want they really want: control over what you buy and their ability to use inflation to avoid having to make tough choices.