Tool for tyrants

Amid the sound and fury enveloping President Trump's first month in office, it's easy to overlook one of his more significant decisions - an executive order banning the creation of a US Central Bank Digital Currency (CBDC). The Republican senator Mike Lee has reintroduced the 'No CBDC Act', which would enshrine the ban on a US CBDC permanently in law. One of his House of Representatives' supporters said when Lee introduced his measure "CBDCs are nothing more than a tool for tyrants".

In 2022 the New York Federal Reserve made known that it was spearheading research on a CBDC under the name 'Project Cedar', while the Federal Reserve of Boston was developing another digital Dollar initiative under the name 'Project Hamilton'. The latter ended in 2023. In March 2022 President Biden said his administration would place "the highest urgency on research and development into the potential design and deployment options of a United States CBDC."

Whether or not President Trump has trashed the idea of a US CBDC because he thinks it could be nothing more than a "tool for tyrants" or just because it was an idea favored by his predecessor is beside the point. What's important is that a CBDC could be used to monitor the payments of all citizens. Financial privacy is desirable for most people, even if they have nothing to hide. In the US a 2022 survey by the Cato Institute found that more than 80% of respondents thought the government should need to obtain a warrant to be to access financial records.

The Atlantic Council says that as of last September 134 countries were exploring CBDCs, with the digital Yuan, e-CNY, being the largest pilot in the world.

Digital yes, central no

The use of cash is steadily diminishing. That process was accelerated during the Covid-19 pandemic, when people switched to much greater online shopping, forced by lockdowns. Credit and debit cards, mobile phone apps and electronic bank transfers have increasingly displaced cash. It's not the 'digital' aspect of CBDCs that is worrying but the 'central'. Most countries have Customer Due Diligence (CDD) regulations, imposing on financial firms the need to collect information which identifies the identity of their customers. That's as far as it goes.

The worry about CBDCs is that whoever supervises the issuing of the CBDC would have direct and immediate information about an individual's financial behaviour well beyond the CDD stipulations, which are in any case designed to prevent financial crime. The Human Rights Foundation reported in January this year that corruption had infected the CBDCs of China and Nigeria and the proposed CBDC project in Lebanon. It rhetorically asks "how can the public be expected to trust governments with the ability to conduct sweeping surveillance and leverage financial controls when the officials leading CBDCs are embroiled in corruption scandals?" A CBDC would be only as good as the people administering it.

Cash is losing value

In any case cash is daily losing purchasing power. In the US inflation is proving very sticky, and in the UK the latest inflation data shows that inflation rose to a 10 month high in January of 3% annually - and that's the official figure. For many people the impression is that prices for basic needs such as food or energy is running much higher than an annual 3%.

But even if it's just 3%, that represents a 3% loss of purchasing power with the British Pound. Since the start of the new century the Pound has lost more than half its purchasing power - today's Pound buys just a shade more than 46% of what it could in 2000. That shocking fact is alarming, but what the future holds could be even more so. The pressure is building for Europe, including the UK, to fund much greater defense spending. How to pay for it? The choice is between borrowing more and increasing national debts, putting up taxes, or cutting public services - which will anger voters. It's not surprising that individuals and central banks are buying gold. Now that the US has ditched the CBDC idea - even if the President's decision is based on a desire to protect private digital assets - it makes sense to buy the form of money that has existed for centuries.

At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

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