Federal Reserve

Fed’s Adoption of Digital Currency Is an Attempt to Control Your Money

digital currencies with yuan and dollar

Ever since the adoption of the Bretton Woods monetary system in the aftermath of World War II, and the adoption of the US dollar as the world’s dominant reserve currency, the Federal Reserve System has been a leader in international monetary policy. Other central banks look to the Fed to see what it is doing before deciding how they’re going to react. The Fed has been at the forefront for so long, it’s hard to believe that it could ever fall behind. But that’s just what has happened in recent years with respect to digital currency.

The creation and initial dissemination of Bitcoin in 2009 set off a cryptocurrency revolution that no one could have predicted. The immense popularity of cryptocurrencies, their astronomic rise in growth, and even their eventual adoption by governments were but a dream back then.

Today, cryptocurrencies have hit the mainstream, with Bitcoin futures and options even being traded on major exchanges. And while some governments have adopted Bitcoin as legal tender, other governments are taking big strides to challenge the dominance of Bitcoin and other private sector digital currencies by creating their own national digital currencies.

China Pulls Ahead of the US

For a while it seemed that only smaller nations would try to establish their own cryptocurrencies, as cryptos were seen as gimmicky. But China shocked the world when it announced its plans to introduce a digital yuan. It was the first major nation to develop and implement a central bank digital currency (CBDC).

Part of the reason for this shock was the fact that China had cracked down severely on crypto trading and crypto mining. And while Bitcoin and other cryptocurrencies are still harshly repressed in China, the government has jumped completely onto the digital currency bandwagon. But that’s not necessarily a good thing.

The benefit of cryptocurrencies like Bitcoin was supposed to be that there was no central issuer. There was no centralized decision maker to declare that new currency units would be created out of thin air. This was supposed to make Bitcoin impervious to inflation.

Even the process of creating new bitcoins, called mining, was an attempt to turn Bitcoin into a type of digital gold. And just like gold, which can’t be monopolized by governments, Bitcoin was supposed to help protect its owners and users from the dangers of government monetary inflation.

By adopting a CBDC, China got rid of all the beneficial aspects of digital currency. The sole purpose of the digital yuan is to grant the government even more control over people’s money, more oversight into what they do with their money, and a greater ability to dominate the lives of its citizens. And now the Fed is getting on that bandwagon.

The Fed Changes Its Tune

For years the Fed downplayed the importance or desirability of a central bank digital currency. It came up with every argument it could for why Bitcoin was going to fail, why cryptocurrencies couldn’t hold a candle to central bank paper currencies, and why there was no need for the Fed to study the issues of a CBDC.

But once China got on board with CBDCs and issued its own, the Fed woke up and took notice. It realized two things. First, by ceding the first mover advantage to China, the Fed was for the first time playing catch up with another central bank. That was an unfamiliar position for the Fed to be in and one which it didn’t want to find itself in.

Second, the Fed realized the same thing China’s central bank did. By issuing a CBDC, the Fed could cement its control over the US monetary regime. To the Fed’s way of thinking, that would allow it to engage in much more effective monetary policy. But to your way of thinking, it’s just one more way for the Fed to control your money.

Central Bank Digital Currencies and Control

As with any plan, the devil is in the details. And there could be a lot of devils if the Fed ever adopts a CBDC. As the financial system works right now, there is still a great deal of privacy inherent in financial transactions. Only certain types of transactions deemed suspicious or potentially suspicious are required to be reported to the government. The rest of the time, you can transact with your money, even electronically, without fear of being spied upon.

With a CBDC, the central bank issues the currency. It could require all users of the CBDC to use electronic wallets that are created by, controlled by, or accessed by the Fed or other government agencies. It could maintain a database of each user of digital dollars, something that could develop into something akin to a national registration system.

The Fed could also track each digital dollar or sub-unit throughout its use, allowing it to compile massive amounts of financial transaction data. It could then provide that data to federal law enforcement agencies to mine for evidence of wrongdoing, or even just something the government doesn’t like. And Congress could not only make a Fed CBDC legal tender, but also incentivize use of the CBDC through punitive restrictions on cash or non-CBDC transactions.

Protect Your Financial Privacy

Because the Fed is playing catch up with China, there’s a very real risk that development of a Fed CBDC could be accelerated, and could be upon us before we realize it. If you don’t want to take part in a new digital dollar, and if you don’t want your financial transactions to be an open book for the government to read, now is the time to prepare yourself.

There’s a reason Bitcoin was set up to emulate a digital version of gold, and that’s because gold has played an important role in protecting both wealth and financial privacy for centuries. When you buy gold, you can literally hold your financial well-being in your own hands.

It’s your choice how you want to store your gold, when you want to move it, and how you want to sell it. You can purchase gold through direct purchases, or you can hold gold in a gold IRA, which allows you to use assets from your tax-advantaged retirement accounts to invest in gold tax-free. And with a gold IRA, the distributions you take can be in physical gold, allowing you to continue benefiting from gold ownership even after your tax benefits expire.

The time to start thinking about protecting your financial privacy with gold is now, before a digital dollar becomes reality. Call the precious metals experts at Goldco today to learn more about how gold can help safeguard your financial privacy.

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