With cash in your pocket you can do what you want, whenever you want, without needing anyone’s permission. Will this change when the government introduces a new digital dollar? We’ll find out soon enough because financial powerhouses are already testing this idea.
This new digital currency – CBDC, or central bank digital currency, to be precise – would essentially be electronic cash. Unlike cryptocurrencies, it would be backed by the Fed, America’s central bank – just like ordinary dollars.
Sooner Than Later
This may sound very futuristic, but it is starting now, and some ongoing trends could accelerate it. For example, the amount of cash used for transactions in the US and abroad is declining sharply. True, last year it ticked up by one percent to 20%, but even so, the downward trend is unmistakable.
In 2018, cash was used to make 26% of transactions – much higher than now. And in 2017 it accounted for 31% – much higher than that.
CBDC also offers advantages that could make this more palatable even to skeptics. If lost or stolen, it could be replaced easier than cash; it also offers various benefits to people with low income.
Governments would also benefit because paper money is expensive to print, has a shelf life of only several years, and needs to be protected and shipped, which add to the cost. Also, it would eliminate counterfeiting and couldn’t be used as readily as cash by terrorists and tax cheats.
“To keep their money relevant, many central banks are experimenting with digital versions of their currencies,” according to The New York Times. And among these is the Fed.
When CBDC is introduced, cash would continue to be used alongside it – offering businesses and consumers another option for buying and selling goods, and collecting and making payments.
The plan is for digital currency to be used with greater frequency, gradually gain widespread acceptance, and ultimately replace paper dollars.
According to The Times, China, Japan, and Sweden have been testing CBDC for at least a year and a half. And the Bank of England and the European Central Bank are doing their own testing. Meanwhile, the Bahamas has already rolled out the world’s first official digital currency.
So far, the Fed hasn’t made any official announcements but it did say a US CBDC would be “a safe option for households and businesses” and may result “in faster payment options between countries.”
Potential For Abuse?
Some individuals see conspiracy theories in virtually everything, and CBDC lends itself to them.
Here’s how the End of the American Dream website described those concerns: “Many among the elite consider digital currency to be the key to a whole new era of strict governmental control over the way that we live our lives, and there would be so much potential for abuse.”
Fueling their fears is a 12-week test of digital dollars that began in November; participants include financial giants such as Citigroup, HSBC, Mastercard, and Well Fargo.
Back in January, the Fed took what some believe was a first step toward introducing a CBDC. It released a study that said this “could streamline cross-border payments and could further enshrine and preserve the dominance of the dollar’s international role, including as the world’s reserve currency.”
This is where conspiracy theorists get worried, because CBDC would enable the government to not only track exactly what we buy, the quantities, and the frequency, but also enable it to control every transaction we make.
Michael Maharray of Schiff Gold said the government could simply “turn off” the ability of certain individuals to make purchases.
Maharray is not the only one concerned. When China launched its digital yuan pilot program, Bloomberg wrote “their digital currency offers China’s authorities a degree of control never possible with physical money” – and Bloomberg is as mainstream and respected an organization as you’ll find.
Even some Capitol Hill leaders are concerned. One of them is James Lankford, Republican Senator from Oklahoma, who introduced a bill requiring the Treasury to keep printing and coining money even if the government officially issues a digital currency.
Lankford pointed out that there are still questions, cyber concerns, and security risks regarding digital money. “As technology advances, Americans should not have to worry about every transaction in their financial life being tracked or their money being deleted.” Logical as this sounds, it still remains to be seen whether such legislation could get through Congress.
Other Concerns
There are additional concerns. An article in the MaineWire noted several hypothetical scenarios that could become reality if CBDC is widely used around the world. For example:
*A tyrannical leader could cancel all protests; protesters who don’t comply could have their CBDC balances reduced sharply until they do;
*If the economy slows, the powers that be could order consumers to use their savings to make purchases they don’t want to stimulate demand; unspent balances in CBDC accounts could be reduced significantly;
*A shopper purchasing groceries may be prevented from purchasing certain items because he or she has already exceeded the quota of carbon emissions for that month.
Before you dismiss these concerns, keep this in mind that unpredictable things are happening. For example, residents of Oxfordshire in the UK will need a special permit to travel from one zone of the city to another, and even if they have one, their travel to other zones will be limited; an official there said “the plan would go ahead whether people like it or not.” Credit this to climate concerns.
France will ban certain short haul flights to reduce carbon emissions. And the Netherlands is going even further: It will buy and shut down 3,000 farms to “reduce their nitrogen pollution” – this despite a severe global food shortage that threatens to get worse.
According to Zero Hedge, the government of Nigeria is sharply reducing cash withdrawals from banks in an effort to limit the use of cash and expand digital currencies. The point: Governments can do whatever suits their goals and don’t need the public’s support.
Conspiracy theories usually have no basis to them and simply vanish. Let’s hope the worries about CBDC is no exception. Still, the only thing one can say about the world is that no one knows what will happen next.
Like them or not, digital currency certainly looks like it’s on the way and we may as well get used to the idea.
Sources: cashmatters.org; endoftheamericandream.com; fortunly.com; frbsf.org; investopedia.com; zerohedge.com
Gerald Harris is a financial and feature writer. Gerald can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
