Money Changes Coming?

Lost in the mainstream media coverage of the corona virus situation are the rather radical currency changes being proposed.  It’s no secret to those interested in financial and economic matters that many policy makers and government leaders have long dreamed of a day we have a cashless society.

Following the advice of former White House Chief of Staff and Chicago Mayor, Rahm Emmanuel who said that those governing should never let a crisis go to waste, there have been credible proposals recently to create a digital dollar potentially moving us closer to a cashless society.

While none of these proposals seem to have enough support presently to become reality, one should keep in mind that in the current economic and political environment, things are rapidly changing, and anything may be possible.

In my newsletter to clients this month, the “You May Not Know Report”,  I delve into this issue in greater depth.

The CARES Act passed in response to the corona-virus situation originally contained a provision for the creation of a “digital dollar” which was removed from the bill before final passage. 

          This from “Coindesk” (Source: Source:  https://www.coindesk.com/house-stimulus-bills-envision-digital-dollar-to-ease-coronavirus-recession) (emphasis added):

Proposed legislation meant to shore up the U.S. economy during the coronavirus pandemic includes a recommendation to create a digital dollar.

This virtual greenback would help individuals and families survive the shutdown of businesses and series of “shelter-in-place” orders which resulted in skyrocketing unemployment claims and a potential severe recession.

Under the draft bills shared last week, dubbed the “Take Responsibility for Workers and Families Act” and the “Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act,” the Federal Reserve – the nation’s central bank – could use a “digital dollar” and digital wallets to send payments to “qualified individuals,” consisting of $1,000 for minors and $2,000 to legal adults.

Both bills employ identical language around the digital dollar suggestion.

“The term ‘digital dollar’ shall mean a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve bank; or an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System),” the bills read.

The Fed would likewise be in charge of the digital wallets, maintaining them for recipients. 

            Any citizen concerned about financial privacy should be highly concerned in my view.

            Presently, there is another bill pending that would resurrect the idea of a digital dollar merely one month after the first run at establishing the digital dollar failed.  (Source: https://www.coindesk.com/digital-dollar-reintroduced-by-us-lawmakers-in-latest-stimulus-bill) (emphasis added):

Congresswomen Rashida Tlaib (D-Mich.) and Pramila Jayapal (D-Wash.) introduced a new proposal to have the federal government issue $2,000 per month to residents by minting a pair of $1 trillion coins and using these to back the payments.

The Automatic BOOST to Communities Act (ABC Act) also brings back the idea of a digital dollar, describing the concept using similar language to a series of bills introduced last month.

Under the ABC Act, Congress would authorize the Federal Reserve to create “FedAccounts,” meaning “Digital Dollar Account Wallets,” which would allow U.S. residents, citizens and businesses located in the country to access financial services.“No later than January 1, 2021, the Secretary shall offer all recipients of BOOST payments the option to receive their payments in digital dollar wallets,” Thursday’s bill read.

As a side note, the bill contains some provisions that are, at least from my viewpoint, alarming.  The Automatic BOOST to Communities Act would give each of these individuals a $2000 initial payment for each member of a household, followed by $1,000 each month for each household member until 12 months after the pandemic ends.  The payments would be made in digital dollars and loaded each month to a BOOST debit card.

Payments under this proposal would be made to  taxpayers, dependents, non-citizens and individuals with no bank account, no Social Security number or no permanent address.  At the risk of offending my readers by offering an admittedly subjective opinion, that is totally, completely and utterly absurd.  Even more delusional is the notion that this program can be funded by minting two trillion-dollar coins.

History teaches us that the money printing rooster always comes home to roost.  This bill, should it pass, will just make that day happen that much faster and take away financial privacy in the process.

            But the bill does confirm that worldwide the idea of digital money is gaining steam worldwide.

            China is presently testing a digital currency.  “The Guardian” recently reported that as of the first of May, China is testing a digital currency in some parts of the country.

            In recent months, China’s central bank has stepped up its development of the e-RMB, which is set to be the first digital currency operated by a major economy.

It has reportedly begun trials in several cities, including Shenzhen, Suzhou, Chengdu, as well as a new area south of Beijing, Xiong’an, and areas that will host some of the events for the 2022 Beijing Winter Olympics.

Digital payment platforms are already widespread in China, namely Alipay, owned by Alibaba’s Ant Financial, and WeChat Pay, owned by Tencent, but they do not replace existing currency.

          Of course, cryptocurrencies originating in the private sector using blockchain technology have been around for the past decade.  Despite their longevity relatively speaking, they have not been widely used in commerce largely due to their wild price fluctuations.  Total crypto-currency market capitalization is now about $250 billion. 

            Despite the fact that crypto currencies have not been widely adopted by the world population, they have provided governments and central banks with a model to follow.  And, they are pursuing it with a vengeance.

            This from “Seeking Alpha”:

In addition to the Facebook attempt to create a digital currency, other “higher profile” efforts have also been made to bring on the digital age. For example, Sherrod Brown, a Democratic Senator, has pushed for the Federal Reserve to get into the game and produce “digital dollar accounts and wallets for all citizens.” Senator Brown attempted to get this into some of the Covid-19 legislative efforts.

In Sweden, the Riksbank, Sweden’s central bank, has looked into the possibility of a digital currency. Already, it is reported that 87 percent of money transactions in Sweden are done digitally by means of private payment companies. So, the move would not seem to be that great.  Bloomberg news even had a story on the Marshall Islands and the efforts being made to create its own digital currency.

            But it’s not just central banks looking to move to digital.  The International Monetary Fund, the central bank of central banks, is also moving toward digital.  Much of this discussion is taking place in the context of replacing the US Dollar as the world reserve currency.

            If you’re not a client of my company, but would like a complimentary copy of the may newsletter to explore this topic in more detail, give the office a call at 1-866-921-3613.