Central Bank Digital Currencies will Fail

Introduction

There’s been a lot of talk around central bank digital currencies lately. That’s not surprising given that the world is experiencing massive financial turbulence. In fact world powers are looking for any way out of their financial woes and implementing CBDCs offers one such solution.

Right now, every government around the world is printing money, borrowing money or in someway or form going into massive debt in order prop up their flailing economies.

The CBDC is very interesting option out of these economic woes because it allows distribution of cash directly to its citizens, however it also recognizes the failure current monetary policies and gives more credence to Bitcoin.

The Problem

The reason Central Banks will create CBDC is simple.

Currently Central Banks lend cash to large banks at preferential interest rates, and then the large banks are expected to lend cash to businesses both large and small. This is intended to stimulate economic growth so that businesses can hire people, create innovation and sell goods and services.

The central banks theoretically control the growth of the economy through these interest rates. Lower interest rates should mean more borrowing by businesses hence stimulating growth, and higher interest rates should mean less borrowing by businesses hence slowing down growth.

However, things haven’t worked this way for decades. What happens now is that the large banks have been getting persistently low/no interest rates cash from the central banks. They use this free cash to purchase low risk, high reward assets like stocks, property, etc rather than lending to businesses. Therefore the cash hardly ever makes it into the hands of small and medium sized businesses.

This has led to the asset bubbles we’ve seen so much of in recent years.

Hence the system is broken and the central banks realise this.

The Simon Dixon Prediction

Simon Dixon was the first to propose that Central Banks would create their own digital currencies. He is a very smart man whose predictions have been on point numerous times, and there’s no doubt in my mind that this prediction will come to pass as well.

He reckons that Central banks will provide an app to its citizens as a backup should the banks fail. If they fail then the central banks will credit you for the cash you’ve lost due the banks failure. However you will need to opt in to certain terms and conditions to use the app and to get your free airdropped money.

The restrictions will curtail your freedom of movement, association, transactions, privacy and anything else that governments will want control over.

I completely agree with this idea of Simon Dixons – and there is no doubt in my mind that this will be used as a nation state power grab to have more control over citizens.

Why CBDCs will Fail

Having been in Information Technology for a long time I’ve learned a great many things.

Startups work very quickly, and use technology to solve problems. They build fast and fail quick. Their focus is very narrow and this allows them to achieve goals quickly.

Enterprises and governments don’t work this way. These are bloated organisations that operate by committee, that are policy driven, that have inordinate amounts of rules and regulations to comply with.

This makes building an enterprise or government app a nightmare.

Without a doubt they will want to spurious rules and regulations that will bring about the demise of their desired goals.

These rules will be numerous, onerous and difficult to code in. It will be so cumbersome that the app will never work.And yet again this will be a big boost for Bitcoin.

Bitcoin works because it’s simple.

It works because it’s mainly functions as a store of value and medium of exchange. This simple set of rules is what has allowed it to become so dominant. Governments and Central Banks don’t get this.

Conclusion

I welcome CBDCs. They’re yet another endorsement for BTC and they will never work providing even more impetus for Bitcoin.

Central Banks and Banks themselves were always going to fail. It’s inevitable. The failure is baked into the system.

Thankfully we all have a way out, a lifeboat if you will, and that happens to be Bitcoin. It offers a simple solution to the convoluted mess that is the current financial system. If offers us sovereignty, prosperity and independence.

I for one prefer any day over a Central Bank issued currency.

Photo by Karsten Winegeart on Unsplash