Central Banks

Digital Currency and Your Retirement Savings: Is the Fix In?

digital currencies

The advent of Bitcoin and cryptocurrencies demonstrated to many people the advantages of digital currency, and particularly of decentralized digital currencies. Bitcoin was developed specifically in response to the actions of the Federal Reserve during the 2008 crisis, including its policies of quantitative easing (QE). Bitcoin was supposed to be a currency that overcame the flaws inherent in centrally planned and issued fiat currencies and that gave more power and control to the users of currency rather than the issuers.

Central banks, including the Federal Reserve, ignored Bitcoin and digital currencies at first. They derided cryptocurrencies as tools for criminals and terrorists, and laughed at the possibility that cryptocurrencies would be anything more than a passing fancy.

More than a decade later, however, we have seen that Bitcoin and cryptocurrencies appear here to stay. Bitcoin futures are even traded on major commodity exchanges, marking mainstream acceptance of the concept of digital currency.

Along the way, central banks began to change their tune. Rather than viewing digital currencies as a threat against which they had to compete, central banks began to view them as something that could be co-opted for their own ends in order to bring about greater control over the monetary system.

China has shown us the central bank road map for this paradigm with the introduction of its digital yuan. And now that China has taken the lead among major central banks, other central banks are playing catch up. The Fed is no exception, and US central bankers have noticeably changed their tune over the past several years.

Whereas once Fed officials downplayed the possibility the Fed would ever issue its own digital currency, now the Fed is actively studying the possibility of issuing a central bank digital currency (CBDC). It could only be a matter of time before the Fed begins issuing a digital dollar.

The Perils of Central Bank Digital Currency

To hear the Fed tell it, a CBDC brings with it many advantages. And consumers, being familiar with Bitcoin and other cryptocurrencies, have a tendency to think of CBDCs as just another form of cryptocurrency. But that complacency could end up costing them.

One of the primary differences between a cryptocurrency such as Bitcoin and a CBDC is that a CBDC has a central issuer. Bitcoin was deliberately decentralized so that no one single issuer could monopolize control over the currency, so that the supply of Bitcoin could never be inflated out of control.

With a CBDC, on the other hand, the issuer has complete control over how many units of the currency are issued. And so it could decide to either overtly or surreptitiously create millions or billions more units of currency than it publicly claims to do.

Proponents of CBDCs like to talk about how central bank digital currencies provide a safe and effective means of making payments and transferring assets. They talk about the convenience and speed of digital payments, which would provide significant improvements to the current payment settling system. And they also like to talk about how adoption of a CBDC could counter illicit finance such as money laundering.

But the flip side to that convenience is what you’re giving up. You’re giving up privacy over your financial holdings, as the central bank issuing the currency will be able to track every dollar it creates and where it is held. You’re giving up privacy over your financial transactions, as every transaction with a CBDC will be able to be tracked by the government. And you’re giving up control over your savings, being forced to trust that the central bank won’t continue creating currency ad infinitum.

You might argue that we’re already in a situation in which we have to place too much trust in the central bank. But at least today the central bank is limited in that its money creation requires a purchase of assets in order to spend that new money into circulation. With a CBDC there is no longer QE as we’ve known it. Every unit of a digital dollar that is created is nothing more than helicopter money.

If you’ve worked and saved for decades to be able to afford a comfortable retirement, the introduction of a CBDC could wreak havoc on the value of your savings. Imagine how high inflation is today and how badly the dollar is being devalued, and then imagine the Fed being able to do that on an even greater scale.

The incentive to save would be decimated, and those who worked hard to save and invest will look like suckers for having done so. A CBDC would be just one more nail in the coffin of the dollar and any last shred of value it once had.

Protect Against Monetary Devaluation

With the introduction of a digital dollar portending a brave new world of inflation and dollar devaluation, it will be more important than ever to protect your wealth against that devaluation. And there’s one asset that stands head and shoulders above the rest when it comes to protecting against inflation and currency devaluation: gold.

For centuries gold has protected wealth and assets against monetary manipulation and currency collapses. Throughout hyperinflationary periods, those who owned gold or gold-backed currencies were among those best positioned to survive the currency crises.

Gold’s performance during periods of high inflation, such as the stagflation of the 1970s, has confirmed its reputation. During that decade, gold’s average annualized gains were over 30%, whereas inflation topped out at 11%. With the future looking increasingly like one of a declining dollar, high inflation, and central bank digital currencies, now is the time to put gold to work for you.

If you’re concerned about the value of your retirement savings, don’t let your hard-earned money wither away into worthlessness when you could have done something about it. Give the precious metals experts at Goldco a call today to learn more about how gold can help safeguard your savings.

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