Be Scared of the Digital Dollar

Even if you love Crypto

I thought I was writing fiction when I posted a story where each person’s DNA was linked to their financial records, with all of their wealth held centrally by the state.

Maybe I should have paid more attention to what was already in the works.

• DNA-based instant identity checks will come along in due course, but we already have fingerprint and face scanning for purposes as trivial as opening up your laptop or mobile phone.
• Organisations such as ID2020, set up with the laudable aim of improving access to services by the unbanked and unverifiable millions, envisage a one-stop identity verification mechanism to replace driver’s license, passport, building access cards, debit and credit cards, transit passes, digital wallet keys, online banking logins and social media passwords. As a byproduct this would create centralised permanent records of your travel, business, financial and social dealings, and health history.

Are you feeling infringed yet? Don’t worry. This isn’t another surveillance state conspiracy post.

Though if you wanted to take a look five minutes down the road, you could consider how Chinese citizens are being allocated social credit for toeing the party line. If their score is too low they will find it hard to book tickets for travel or access other services.

No, all I wanted to establish above is that the infrastructure exists, or is being developed, which can indisputably verify your identity and attach that identity to all of your activities bar sitting in your chair whittling clothes pegs.

So how might such a robust identity program be utilised?

Here are a few clues.

• The original draft CARES Act had a provision for the support check to be paid through a digital dollar program. This reference was redacted just before the legislation was finalised.
• No matter, a separate digital dollar initiative (The Banking For All Act) was presented to the Senate on March 23rd.
• The Fed is on record as saying it is “exploring central bank digital currency options”. With astounding synchronicity, the former Head of Legal at Coinbase crypto exchange was recently appointed COO of the Office of the Comptroller of the Currency.
• The Visa corporation lodged a patent in May for the creation of what it calls “digital fiat currency”. One of the main steps towards achieving this is set out in the patent.

“The removal of the physical currency from circulation includes physically destroying the physical currency”

So — dollars would be burned or otherwise destroyed in the creation of the new alternative. Presumably some incentive would be offered initially to grease the path to adoption, but this might soon morph into penalties for being so backward as to hold on to the folding stuff. As a result of the Covid-19 pandemic, numerous stores and coffee chains have already started the ball rolling, by refusing to accept cash in their outlets.

Is it so far-fetched to assume that over time everyone will be obliged to adopt the digital dollar and will therefore have even their most trivial transactions subject to state and federal scrutiny, just as their larger wire transfers already are?

Again China is a step ahead in this respect, and the introduction of its Digital Yuan is alleged to be imminent.

It’s often said that those who have nothing to hide are unafraid of scrutiny, and not many will shed a tear at the vice and drug trade being disrupted by this level of transparency.

But while it may be convenient for unemployment or stimulus checks to appear automatically in your account, fewer people would be comfortable with the reverse, collection of taxes or parking fines by direct access to your funds.

However, the main reason the Act is likely to gain bi-partisan support is the flexibility it gives a government of either stripe as to its fiscal policy.

The Fed has largely shot its bolt by declaring unlimited quantitative easing. They will print as much money as necessary to see the US through the current crisis, by which of course they mean shoring up the stock market, irrespective of unemployment, disease and civil unrest, until after the November election.

But there is another form of intervention available, generating a bigger prize to the government, by further reduction of the interest rate to negative levels.

Negative interest rates are a tough concept to grasp. You give someone your money and after a period of time you get it back with a percentage shorn off.

Ally that to a brave new world where you can’t keep your dollars under a mattress, but need to have them stored digitally by someone who will now charge you a percentage for doing so. Do you see where this is heading?

Lest you think this is another conspiracy theory, demonising the commie Left who would curtail your freedoms and pick your pockets while you sleep, you should know that the Commander-in-Chief is fully on board with this concept, as outlined in his tweet of May 12.

As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!

These are the ways in which your personal and economic freedoms are being eroded step by step, while you are being distracted elsewhere.

Maybe we shouldn’t rely so much on the news cycle and social media to select our next protest target?

Many thanks for reading!

More pondering politics and finance below.