How the Banking Crisis Could Lead to a CBDC

It seems there are two things today that many bank depositors fear most: a collapse of the banking system, and the introduction of a central bank digital currency. A banking collapse is an understandable fear, especially given the size of bank failures this year. And a central bank digital currency (CBDC), with its implications for financial privacy, is similarly concerning. But did you know that the two issues could be intertwined?

No one wants to lose their hard-earned bank savings to a banking collapse. But at least with federal deposit insurance, depositors are protected up to $250,000. A CBDC, however, means that every financial transaction you enter into could be tracked by the government. While you might have the “security” of the government providing and insuring your money, everything you do could be monitored.

The recent instability in the banking system could give greater impetus to developments to bring about a CBDC in this country. Here’s how.

How a CBDC Works

Rather than banking with your local bank or credit union, a CBDC would envision each individual holding a bank account with the central bank, the Federal Reserve System. There’s just one problem with that. The Federal Reserve System isn’t a retail bank.

Most of the Fed’s employees aren’t bankers and never have been. They’re economists, accountants, or lawyers. Even the employees at the regional Federal Reserve Banks aren’t set up to run retail banking operations. So how would the Fed implement a CBDC?

In all likelihood a CBDC would require a partnership between the federal government, the Federal Reserve, and commercial banks. Large banks like Wells Fargo, Citigroup, or Bank of America could end up getting drafted to run the behind the scenes operations of the CBDC and the associated accounts that would go along with that.

One of the reasons a CBDC hasn’t been supported by the banking sector is because many banks are fearful that a CBDC could put them out of business. After all, if the Fed issues a digital currency and places them into accounts, what need is there for retail deposit banking?

Harnessing major banks to run the back-end operations of a CBDC would go a long way toward assuaging fears among bankers that the CBDC could make them obsolete. And it would provide a guaranteed source of revenue to those banks lucky enough to run those operations. But what about the banks who lost out on those operations? What about the small regional and local banks that don’t stand a chance of competing in that environment?

Bank Failure and Consolidation

Of course, if there aren’t as many of those small regional and local banks around, then there won’t be nearly as much opposition. And that’s where bank failures come in.

The three banks that most recently failed were within the top 20 in the US. Their assets were all scooped up by larger banks. Presumably if other banks were to fail, their assets too would be sold off to larger competitors.

If bank failures pick up as the economy continues its downturn, it could lead to significantly more bank failures and greater consolidation within the banking industry. And that could reduce the resistance to a CBDC from the banking sector, because those most likely to lose out with a CBDC would already be out of business.

After all, it’s one thing for a CBDC to put hundreds of smaller banks out of business. But if those banks have already failed and been purchased by competitors, especially competitors who might participate in a CBDC scheme, then the negative effects of a CBDC on the banking sector might become lessened.

Impact of a CBDC on You

Of course, even if the banking sector eventually acquiesces to a CBDC, that doesn’t mean that everything will be just fine. For millions of Americans who enjoy relative financial freedom and privacy right now, the adoption or imposition of a CBDC would rub them the wrong way.

Imagine the government having access to every single transaction you make with your bank account – every bill you pay, every person you transfer money to, every purchase you make. The government’s ability to track financial transactions that use CBDCs is a feature to the government, not a bug. They want to be able to find out who is spending money on what.

Like every government scheme they try to couch it in terms of finding tax evaders, money launderers, and criminals. But inevitably ordinary Americans are going to find themselves the focus of this tracking.

Remember how President Biden said he was going to focus on taxing billionaires to raise more money? But then he reduced the 1099 reporting threshold from $20,000 annually to $600, meaning that millions of Americans may now end up being liable to pay taxes on personal items they sell online.

It’s understandable, then, that many Americans fear the repercussions of a CBDC. They don’t want their financial activity tracked by the federal government. They don’t want to have the federal government exercising direct control over their bank accounts and potentially determining whether or not they can use the funds in those accounts. And that’s why they’re looking to protect themselves against the possibility of CBDC adoption.

One way that they’re doing that is by buying gold and silver. Gold and silver aren’t just stores of value and safe haven assets, they’re physical assets that the government can’t control. Gold coins at a depository or silver coins in a safe at your house can be an antidote against greater government control over the monetary system. And in a worst case scenario, gold and silver coins could end up being the only kind of money the government can’t exercise complete control over.

Many Americans are fearful of the consequences of a CBDC. And while CBDC adoption still seems like it’s years away, many people are preparing now so that they won’t be caught flat-footed if the Fed does finally adopt a CBDC.

With over $1 billion in precious metals placements and thousands of satisfied customers, Goldco has been helping Americans benefit from gold and silver for over a decade. Call Goldco today to learn more about how gold and silver can form part of your plan to protect against the negative effects of a central bank digital currency.