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Soapbox: The future of payments is digital

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One of the accelerations brought about by Covid-19 is the move away from cash and towards digital payments. People have been terrified into thinking that the virus can be spread by touch; they have become wary of touching anything that has gone through many hands, such as banknotes and coins. This means that card payments and online banking have become more popular – a change that’s likely to stick around.

The UN has thrown its weight behind digital payments in the “battle” against Covid-19. And the EU is doing the same. Valdis Dombrovskis, the European Commission vice-president for financial services, wrote on Twitter at the start of the European quarantine measures that it was “time to swap your coins for payment cards – safer for containing coronavirus”. Card payments – even for small amounts – are becoming ubiquitous, even though there is no medical evidence that cash transmits the virus. Nor are cards and terminals impervious to contagion: the Bank for International Settlements (BIS) published a report in April this year which said “to date, there are no known cases of Covid-19 transmission via banknotes or coins… The fact that the virus survives best on non-porous materials, such as plastic or stainless steel, means that debit or credit card terminals or PIN pads could transmit the virus too”.

Governments like this trend

This trend suits many people, not least governments because it centralises power in their hands. Carrying and using a card instead of notes and coins is also more convenient for individuals, including Glint card users. Visa has reported a surge in contactless payments in the UK and a doubling of such payments in the US from a year ago.

One of the knock-on effects of this is that the BIS thinks that “the pandemic may hence put calls for CBDCs (central bank digital currencies) into sharper focus…”

So it’s really only a matter of time before we are all dealing with CBDCs. But the shift towards digital payments is one thing, and the gradual creep of CBDCs is another.

The power of a CBDC is as much political as economic. China’s CBDC is likely to be launched by 2022. China’s CBDC is about replacing all money in the system, not just cash. It will eliminate private commercial bank money. Instead the People’s Bank of China (PBoC), the central bank, would supply the public with money as a public good; banks will be reduced to monitoring accounts and collecting data, which would be under the supervision of the PBoC, thus tightening control over Chinese citizens’ lives by the Communist Party. Other countries that are testing CBDC projects include Ukraine, Uruguay, South Korea and Sweden. And the European Union has just published a ‘report on a digital euro’, the foreword of which states that “a key part of the Eurosystem’s mission is to provide citizens with riskless money for their payments”. The European Central Bank (ECB) has clearly failed in that mission – since it was launched in 1999 the euro has lost 85% of its value against gold.

In that respect it’s no worse than the US Dollar or other fiat currencies. The purchasing power of all fiat currencies versus gold has fallen.

CBDCs will not be your friend

If the euro “should now be recognized as an experiment that failed” to quote Martin Feldstein, the deceased former Harvard professor of economics, then much the same can be said of other fiat currencies.

There’s a school of thought that welcomes the idea of societies going completely cashless, that CBDCs will make life simpler and easier. That may be true, but they would not remedy the biggest flaw in any paper-turned-digitised currency, which is a steady loss of purchasing power.

When she launched the EU’s report on CBDCs last week Christine Lagarde, president of the ECB said “our role is to secure trust in money”. But how can one have trust in paper currency when it is so starkly evident that it has dramatically lost – and continues to lose – purchasing power?

If I were Chinese, I would run as fast as I could away from its own version of a CBDC, which is clearly going to be just another instrument of top-down state control over the individual, mining and exploiting personal data for all it’s worth.

But what about the ECB’s version, or that of the US, where among a CBDC’s other attractions it is seen as a “better way to deliver stimulus payments to populations”, i.e. it’s a smoother way of delivering ‘helicopter money’. The ‘Banking for All’ Bill introduced in the US Congress in March this year requires all Federal Reserve member banks to provide digital dollar wallets to residents and citizens, and to businesses domiciled in the United States. “Among other things, these accounts must provide specified banking services to eligible persons who elect to deposit funds into these accounts, including access to COVID-19 (i.e., coronavirus disease 2019) aid payments”.

For the delivery of helicopter money a CBDC, under the control of a central bank, is the perfect vehicle – though it would ruin the business model of private commercial banks. But it puts into the hands of central banks and their governments much more control over the supply of money, which is a dangerous game, given that the US Federal Reserve and now the ECB (others will follow suit) have relaxed their targets for inflation.

Far better to retain your liberty and use the only form of money governments cannot control, which is gold. You can use gold to buy just about anything in the most convenient way, via your Glint Mastercard®; you can share gold via your Glint app using the new Glint it! facility (not yet available in all regions) – and remain above the relentless decline in the purchasing power of whatever fiat currency you exist with.

Download the Glint App to start saving and spending your gold

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