China to Fire First Shot in War on Cash
There has never been a better time to own genuine, bona fide cryptocurrency.
That is the central thesis today.
I say this because big moves are afoot amongst central banks with China being the country most willing to fire the first shot in the war on cash.
China going after M0
Bloomberg reported on Monday that the People’s Bank of China (PBoC) is ‘close’ to issuing its own ‘cryptocurrency’.
I put it in quotation marks because Bloomberg gets it wrong from the start here.
There is nothing more centralised than a central bank backed digital currency (CBDC).
Especially a Chinese one.
And it’s a scary thought to imagine this trifecta in action:
- The Great Firewall
- AI powered state surveillance
- Total control over a citizen’s wallet
The stated goal of the Chinese CBDC is to have information about every transaction.
The initial plan is to substitute the Chinese CBDC or ‘digital yuan’ for M0 (i.e. all the coins and notes in circulation).
Substituting the digital yuan for M2, which includes bank deposits, would be one of the next logical steps after a roll out.
Basically, China is trying to beat Libra to the punch. And Libra will likely be a crypto in name only!
Fool me once, Facebook…
Europe could be the next domino to fall
Back in 2014 I went to a pizza shop in the Netherlands and couldn’t pay with cash.
I was more than a little pissed off.
In the US, my greenbacks clearly state, ‘legal tender for all debts, public and private’.
This anecdote aside, Europe strikes me as the next major force in international monetary policy to go after cash via a CBDC.
For starters, European Central Bank (ECB) President, Mario Draghi is on the warpath to peak weirdness with his affinity for rate cuts.
But that’s a joke in itself.
There is nothing to cut — rates are already negative.
The effect of this monetary policy is to make saving pointless and borrowing profitable (hopefully).
This could trigger a growing interest among tech-savvy Europeans to ‘stuff cash under mattresses’ in the digital realm.
Christine Lagarde of the IMF knows what’s up.
Back in November of last year, the Managing Director of the IMF said, ‘I believe that we should consider the possibility to issue digital currency.’
Bitcoin actually sold off slightly on this news. Here’s the chart for that period:
[Click to open new window]
More recently in April, she said, ‘We don’t want innovation that would shake the system so much that we would lose the stability that is needed.’
So the plan amongst European central bankers is likely to try to force cryptocurrencies out of the market by co-opting certain features, while still maintaining control.
An ECB issued CBDC could for instance, have a depreciation mechanism built-in that forces you to spend thereby boosting the economy.
Australia edging towards cashless society
Australia may be on the tail-end of the trend away from cash but it will not be immune from the pressure to change emanating from China and Europe.
The government has a bill in the works to impose penalties on parties engaged in cash transactions involving more than $10,000.
And it’s looking like Labor will back it.
Shadow Assistant Treasurer Stephen Jones has recently been quoted as saying:
‘I don’t know the last time you used cash to buy anything, but the answer from me is never.’
Maybe he’s hanging out in posh shops too much and not going to the market.
But the point remains that the limit could be the first step towards a dangerous erosion of privacy.
Cash is the best way to not share data about your purchases.
Crypto then looms as the best way to do this in a world where central bankers have squeezed out all the cash.
Ever buy something online and get hounded by targeted ads for weeks after?
This is one of the best cases for crypto.
Since it is pseudonymous it is much harder for the big corporates to try and tinker with your data for profit.
The other great case for crypto is that it forms a bulwark between you and central bankers that want to tell you when to spend and when to save.
The case for crypto in a world of currency competition
Here’s the rub.
A Chinese CBDC will be part of the largest experiment in social control, Libra could potentially leverage your transaction history for even more targeted marketing, and an ECB issued CBDC could leave you exposed to the pressure to spend.
The picture that emerges here, is of a world where there are three broad classes of currency.
You will have genuine, bona fide cryptocurrencies, corporate ‘cryptocurrencies’ and CBDCs — all competing and interacting in different ways.
True cryptos may be the safest bet in this environment.
You are not beholden to some corporate behemoth that is trying to peddle your data, or at the mercy of a central banker who could be trying to force you to spend or save (unlikely).
It’s yours and yours only.
Bottom line: consider owning some genuine, bona fide crypto.
For Money Morning
PS: Bitcoin buyer’s guide: everything you need to know to buy your first bitcoin today. Click here to download.