The Digital "Dollar" Will Not Prevail

over 3 years ago

CBDC is being discussed by every central bank around the world. Since the success of Bitcoin, central banks and governments are taking a closer look at digital currencies. This is a move to eliminate cash and become "technologically" advanced.

Or is it?

To start, we know that blockchain does offer a lot of advantages for transacting. As compared to the SWIFT network, the cost of transacting is much less and a lot faster. Settlements within the present system take days. On a network like Bitcoin or Ethereum, it can be within minutes.

However, speed and cost are not the only advantages. Immutability and transparency allow anyone to see what took place. Transactions cannot be easily reversed nor can accounts be targeted for withdrawal unless one has the keys.

Of course, this all applies to a decentralized blockchain. In one where the main players are controlling the network, we see a different story.

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CBDC are not meant to be operating on a decentralized blockchain. While there might be some advantages to using digital currencies of this nature, the goal is control. At the top of the list is taxation. Countries are all mired in debt and running deficits. Thus, they need money and when governments need money, they go after taxes.

Another aspect to this is the ability to shut down accounts. This will enable governments to "combat illegal activity". That is how they will sell it. In reality, they will shut down the accounts of those entities they do not like. Take the pot community in the United States. Some states made the growing and selling of cannabis legal. However, those businesses cannot operate using a bank account because, according to the Federal Government, it is still illegal.

Results are coming in from China after their weeklong experiment with the digital Yuan. Let us just say the users were not really impressed. Most could not see any difference between the new currency and how they were presently operating.

This makes sense since China is a digitally advanced country and the majority of their payments were done through applications anyway.

The same is not true for other areas of the world.

Globally, most transactions are still done in some form of cash. Even in the United States, physical checks still make up for more than 12% of all money remitted. This is an issue for the United States Federal Reserve in their effort to push forth a digital version of the USD.

Nevertheless, there is a much bigger obstacle in the way. Presently, 60% of the physical USD is held outside the United States. This is a number that keeps growing as people use it as a hedge against the Euro and Yen as those central banks continue down the Keynesian highway. Add in the third world nations where the USD is more valuable than gold since those countries currencies are a mess, and we see the battle the Fed will have.

When the fallout from COVID-19 hit, the world went into panic mode. There was something very telling about what took place in March. The global community gave a resounding answer as to what it views the store of value in a time of crisis. We saw traders all over the world move to cash, and that currency was the USD.

Outside the United States, much of that move was to physical cash itself. Even within the borders, many took out a few thousand dollars to have at their disposal. In other words, for all the talk of Bitcoin, gold, real estate, and whatever people espoused as a store of value and hedge, it was the USD that the world turned to.

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Another irony, in spite of all the money printing since March, there is still an issue: there is not enough USD out there. The world is thirsty for it, at least in the physical form. The more games the central banks around the world play, the greater the need for USD. People are simply going to turn to it.

The United States Government hates the physical dollar because of what people can do with it. For all the talk about the amount of criminal activity done in cryptocurrency, the truth is the USD sets the gold standard for this. Criminals all over the world interact in the USD because it cannot be traced. Even using the banking system, they can "wash" the money as evidenced by the latest report citing $2 trillion in money laundering by the major banks around the world.

It is interesting that the likely failure of the digital dollar will not come from rejection by Americans. People are basically sheep and most of the US is still sucking the teat of the MSM and whatever the government "experts" say. Instead, it is going to be people in countries like Venezuela, Nigeria, Greece, and Portugal that keep the USD afloat in its current form. They simply are not going to give it up.

Of course, the United States Government doesn't want that to happen either since it helps to keep the USD firmly entrenched as the global reserve currency.

In the end, currency comes down to confidence and the USD is still king by a wide margin. The worse the conditions get, especially across the Eurozone, the greater the likelihood that people keep turning to this currency.

In the end, this makes a full conversion to the digital dollar almost impossible. Ultimately, the Fed will be forced into some type of hybrid system which will leave the door open for people to exploit it.

It is going to get very interesting.

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