In today’s Money Morning…a crash course to oblivion…Powell pulls the trigger…a new level of centralised control…and more…
Yesterday I went on a good old tirade about the Fed and its less than impressive attitude toward inflation. A story that has gripped and roiled markets over the past few days.
All of which leaves me to conclude that Powell and company are blind at the wheel.
But, I’ll admit that that connotation may be a little unfair.
There is a chance that the Fed may be well aware of what is happening. Which is honestly more frightening than if they were truly ignorant.
Because not only would it suggest that they’re OK with the debasement of the dollar. But that they’re actively trying to hurtle towards its complete destruction.
Flooding not only their own economy but the world economy with US dollars. Putting it on a crash course to oblivion.
At least, that is the trajectory that they’re headed toward.
Maybe, though, just maybe, that is the goal…
A plan that could entail a power grab of the likes that the world has never seen before. And it could all kick off with the Fed’s new central bank digital currency (CBDC).
Powell pulls the trigger
Overnight the Fed released a new video of Jerome Powell explaining the central bank’s plans for a US-based CBDC. Talking about the possibilities, limitations, and certain expectations of what a digital dollar could entail.
Naturally, news of this development shouldn’t come as much of a surprise.
We’ve known that the Fed, like many central banks, has been looking into CBDCs for some time now. A tool that could provide new advantages and controls for monetary policy.
Especially with the advent of stablecoins, that are effectively threatening to remove the need for central banks at all.
Of course, that’s not how Powell sees it:
‘Recently, the rise of distributed ledger technology, which offers a new approach to recording ownership of assets, has allowed for the creation of a range of new financial products and services—including cryptocurrencies. To date, cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value.
‘Nonetheless, coins tied to the value of the dollar or another currency—known as “stablecoins”— have emerged as a new way to make payments. These stablecoins aim to use new technologies in a way that has the potential to enhance payments efficiency, speed up settlement flows, and reduce end-user costs—but they may also carry potential risks to those users and to the broader financial system.
‘For example, although the value of a stablecoin may be tied to the value of a dollar, these coins may not come with the same protections as traditional means of payment, such as physical currency or the deposits in your bank account.
‘Therefore, as stablecoins’ use increases, so must our attention to the appropriate regulatory and oversight framework. This includes paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries.’
In one fell swoop, Powell is trying to dismiss the legitimacy of stablecoins (because they aren’t overseen by any institution beholden to the Fed), whilst also praising their ability to improve the financial system.
So, naturally, his solution is to pursue a Fed-made stablecoin — a CBDC.
And at some point during the US summer (June–August), the Fed is going to publish a discussion paper on a proposed CBDC. The firmest commitment yet from the central bank that could ultimately lead to a digital US dollar.
The only question I have, though, is to what end?
A new level of centralised control
See, much like China’s own CBDC (the digital yuan), I can’t help but be pessimistic.
CBDCs, unlike their cryptocurrency counterparts, retain their centralised nature. The Fed would still have control over this ‘money’ and be able to tamper with it under the pretense of economic stability.
Defeating the whole purpose of the DeFi revolution that we’ve been talking about at length lately.
But I honestly believe that is the whole point…
The Fed, and by extension the US government, isn’t willing to give up control. Just like the CCP and its central bank aren’t willing to give up control.
No, instead, by utilising these CBDCs they’re actually trying to gain more control.
Because unlike regular cash, a digital dollar, yuan, or whatever currency you choose, can be tracked and monitored. Allowing not only for real-time responses to monetary policy, but also the ability to see how each and every one of us is spending our money.
Even more disturbing is the possibility for a CBDC to force your hand. Something that China has already been toying with. Issuing its digital yuan with an expiry date — meaning the money becomes worthless if not spent within a certain time frame.
That is not the kind of oversight and power that the future of finance needs.
A stark contrast to the objectives of the real DeFi revolution that is coming.
Because as I alluded to in the introduction, and if I put on my tin foil hat, I could rationalise the Fed’s excessive money printing under the guise of a broader CBDC power grab. Perhaps forcing any individual, corporation, or nation who holds US dollars to exchange it for this new CBDC.
And in doing so, the Fed would be able to oversee every movement of this digital dollar.
Scary thought, right?
As for whether this kind of supervillain-style takeover would actually happen, I don’t know. No one does.
That’s why I say it requires me to put on my tin foil hat. Because it is obviously highly conspiratorial in nature.
The broader point, though, no matter what happens with this Fed CBDC, is that the future of finance is shifting.
We’re seeing this clash of old-world ideology in centralisation butt heads with the emerging new paradigm of DeFi spurred by cryptocurrencies and blockchain.
And for everyone involved, it is a clash that you can’t afford to ignore. Because no matter who you are, or what you do, the changing landscape of finance impacts us all.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here
