That’s why only Central Banks can create digital currencies

The Fed recently put out a white paper, Data Privacy for Digital Asset Systems, which contends that the expectation of privacy in digital currencies (read: CBDCs) stems from misunderstanding how digital systems work.

“Concepts such as the desire for ‘cash-like anonymity’ are based on false underlying assumptions.”, is the crux of it (quick, somebody tell the Monero team, and everybody else already deploying anonymizing protocols and applications for digital assets).

The subtext is that there can be some privacy and confidentiality safeguards built into CBDCs, but at the end of the day those would still be subject to being overridden or dispensed with. The paper doesn’t come out and say that, but it does make oblique references:

“confidentiality implies that collected and stored data is protected from view in some manner, such as obfuscation or access restriction, and available only to authorized actors.”

Which of course makes you wonder who exactly will be authorized and what will their capabilities be? It truly is the trillion dollar question.

WEF: “Hold my beer”

If we keep this paper in mind while we consider the World Economic Forum’s recent article on digital currencies, privacy and freedom, which put a finer point on it, while paying lip service to the desire for privacy in those characteristic WEF-speak euphemisms:

“A digital cash replacement should not enable criminality, but there should be some freedom to transact with complete privacy.”

“Some freedom” implies that any freedom will be subject to approval, because either you have complete freedom, or you don’t.

“Some freedom” coming from the WEF especially, sounds a lot like their “Life in 2030” vision, which is mostly known for point #1: “You’ll own nothing and be happy”.

Point #4 is “You’ll eat much less meat. An occasional treat, not a staple. For the environment, and for your health”.

In other words, according to the WEF, digital currencies will afford some privacy and some freedom. Just like how in 2030 you’ll be able to eat some meat. (As long as you behave.)

Throughout the piece the impetus toward digital currencies is ascribed to consumer preferences for convenience – that nation states and NGOs (including the WEF) are relentlessly pushing us there, along with digital IDs and health passports, is never mentioned.

Through their preference for the convenience of electronic payments, we will inadvertently lose the historic freedom that only cash provides: to spend our money on what we want, with whom we choose.

It’s always amusing to watch the Davos-darlings pretend to grapple with thorny ethical issues:

As governments and central banks consider introducing retail central bank digital currencies (CBDC), they must therefore answer the following: Once the last cash payment is made, does this mean our historic right to make payments that are not observable or censorable by the state will end on the same day? Is that what we want?

The answer, of course, is a resounding “yes” if we’re to remember some of the more breathless pronouncements from their conclaves:

Alibaba Group president J. Michael Evans boasts at the World Economic Forum about the development of an “individual carbon footprint tracker” to monitor what you buy, what you eat, and where/how you travel. pic.twitter.com/sisSrUngDI

— Andrew Lawton (@AndrewLawton) May 24, 2022

“We are developing, through technology, an ability for consumers to measure their own carbon footprint. What does that mean? That’s where are they travelling, how are they traveling? What are they eating? What are they consuming on the platform? So, individual – carbon – footprint – tracker. Stay tuned, we don’t have it operational yet, but it’s something we’re working on”.

The WEF article tackles the conundrum:

any system that allows people to make payments that cannot be traced or blocked is bound to attract criminals as well as facilitate personal liberty… A digital currency system should not mimic the “wild west”, but there should be some freedom to transact with complete privacy.

And while the article acknowledges that,

“if a CBDC doesn’t have some element of this capability, my prediction is it will fail in some major developed economies.”,

the entire framing is that Central Banks are the only game in town, and they need to get it right:

If the private sector could deliver a truly cash-like product itself, then we wouldn’t need this debate, but even a limited degree of cash-like behaviour would be incompatible with electronic payments laws. The reality is that only a central bank could deliver this type of product, thanks to the precedent set by their monopoly on the issuance of cash.

This paragraph would be the so-called “money-shot”. There is no mention of Bitcoin, or that crypto-currencies and stablecoins are already becoming ceded territory within the regulatory frameworks of nation states. There is no acknowledgement that many holders of wealth and capital will simply end-run CBDCs for the very reasons they articulate.

One of the WEF’s core tenets is that nation states are losing their position as the sole arbiters of power in this Fourth Industrial Revolution. That means they will have to coexist within a rubric of “Stakeholder Capitalism”, but what the WEF sending mixed messages:

On the one hand, governments are losing their primacy (and thus, monopoly on money issuance and supra-national initiatives like digital id’s and health passports), while on the other, only they have the authority to bless ascendent monetary systems. Which is it?

And how could you possibly publish an article like this without observing the elephant in the room: Bitcoin (and crypto-currencies, including stablecoins) have already entered the monetary landscape and have changed it in irreversible ways.

As expected when it comes to the World Economic Forum, it’s a display of truly breathtaking hubris and nescience.

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Today’s post was an excerpt from the CBDC coverage section of the latest The Bitcoin Capitalist. TBC provides actionable intelligence on the macro forces shaping Late Stage Globalism and a tactical toolkit for preserving and growing your wealth as it plays out. Try it today here.

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Ironically, the push toward carbon-rationing and CBDCs is based on the same insight by sound money advocates: Fiat is worthless.

Let me tell you a parable about value. It’s about how the “thing” that everybody assumes has value can change over time, and by the time it changes, people have completely lost touch with the original measure of value.

In the early 00’s, easyDNS was getting ready to move our servers out of our physical office and into an actual data colocation center in downtown Toronto.

When we got our first cabinet, we were billed in terms of how much rackspace we were using, and what our bandwidth consumption was. In those days, the servers were trying to pack themselves into smaller enclosures and compress the data payloads to reduce bandwidth. There were 2U boxes, the bleeding edge stuff coming out was 1U, and if you were a dinosaur from late-90’s, you might have some legacy 4U servers, which were costing you a fortune to rack.

What was missing from that equation?

Power. There were no power costs, or if there were, they were negligible to the point where I can’t even remember having them. The power costs were just built into the price of the rackspace and bandwidth.

Fast forward 20 years, and it’s inverted completely. The number one cost when you provision new cabinet space these days is typically your power commit. Then bandwidth and transport. Now the rackspace is practically a throw-in. In many cases, what people think of as “servers” today are just virtualized images that don’t even take up any physical space.

What changed? The world did.

Who cares? Mostly nobody.

What I mean by this, is nobody thought that switching to charging for power consumption instead of rackspace was a big deal. The overall economics of the space changed, and as a result so did the pricing model. In other words, the underlying value commodity switched from Thing A (physical space) to Thing B (power). Other than adapting to it, nobody really cared.

The same thing happened with “money” -and it’s about to happen again

Money used to be backed by gold (Thing A) and then by a national currency exchangeable for gold (Thing B). In practical day-to-day terms, most people didn’t care and continued to use whatever they had in their wallets for currency.  Thing B even became the global reserve currency.

Then in 1971, it switched again and that reserve currency could no longer be exchanged for gold (Thing A) while Thing B would henceforth be …nothing. It was supposed to be temporary. 

People continued to use the reserve currency to denominate exchange and found that using nothing to back the value of the currency actually made life better, for awhile. At least for those who were in close proximity to the people who were able to mint more of this new “nothing money” out of thin air (they’ve come to be known as Cantillionaires).

Since all the other currencies were backed by the reigning reserve currency, this meant that they were now all backed by Thing B as well. And Thing B was nothing.

There were people who sounded the alarm that the the new Thing B (nothingness) was unsuitable for backing a currency, let alone a global reserve asset. Over time, they warned, it would create ever-increasing wealth inequality, blow up serial asset bubbles followed by ever worsening financial crises and probably end in a hyper-inflationary blow off.

They were dismissed as cranks and conspiracy theorists. In more recent times, right-wing extremists or Kremlin stooges.

Even so, as ignorant and retrograde as these people were and still are, today even mainstream commentators and anointed experts realize we’ve more-or-less run out of runway for having a global reserve currency backed by nothingness.

The fiat currency era is essentially over.

Goldbugs knew it wouldn’t last and invested in gold for centuries. They still do today. Now there is also Bitcoin, which captures the same mechanism: in this case using energy to back currency.

But globalists and central bankers are in a conundrum.

There is the realization that the fiat era, backing money with nothing is about to hit the wall.

But even central bankers know they can’t print energy out of thin air.  It would render Cantillionism obsolete overnight, and we can’t have that.

What is needed is some basis to backstop that currency that has some kind of value, a perceived scarcity or cap attached to it, in order to reestablish faith and legitimacy in the “money”. Further, it needs to be something that can be controlled and distributed from within the central bank / state mechanism – it must be entirely outside the influence of market forces.

Finally, it has to have an ideological pillar that can be used to shape public opinion around its acceptance.

The New Thing B is Carbon

The last legs of the failing monetary system will see another of these transitions where the value medium shifts from Thing A to Thing B.

There will at least be an attempt to implement one. Whether they get it out the door before  the monetary end-game plays out remains to be seen.  The destruction of the current system has been so accelerated by the ubiquitous mishandling of the Covid pandemic by policy-makers that the current system may come off the rails entirely before a new one can be implemented (subscribers of my premium newsletter have been getting our coverage on CBDCs and how far behind the curve nation states and central banks are in actually developing them. This why I think, ultimately, they try to go with something that already exists, like WEFereum Ethereum).

But the plan from on high is that we will go from pricing goods and services based on their input costs of production and distribution (Thing A), to pricing privileges and consumption based on their perceived carbon emissions (Thing B).

We’ve all seen the latest think piece out of the World Economic Forum, characteristically shrouded in their benevolent-sounding euphemisms, pushing for individual carbon rations and justifying it that because the world’s population sat still for, and complied with, global lockdowns. They suggest that the plebes are ready to accept having their individual carbon footprints metered by unelected bureaucrats and opaque AI-driven algos.

The WEF piece linked to a 2021 paper by Nature that mapped out Personal Carbon Allowances, and the impetus to define one’s  “fair share” of carbon emissions and the “setting of acceptable levels of carbon emissions”.

When you set aside (for a moment) the totalitarian implications of this,  it does make a certain amount of sense. In its own way, it proves the point that hard money advocates have been making for decades, if not centuries: fiat money is valueless.

Beneath all this climate alarmism driving the move to carbon rationing, there lies an implicit admission, conscious or not, that for money to be viable it has to denominate an economic trade-off.

You cannot print value ex-nihilo. In so doing these last 50 years (since the commencement of the fiat era in earnest), we’ve gotten to a world where the price of capital – and thus, time, if you read Edward Chancellor’s latest book (and you should) – is nominally zero, which collides with the reality of the finite (or with the laws of physics – as somebody like Doomberg would say).

The central bankers of the world made one big divide-by-zero error, and the result is what we actually see playing out across many dimensions, right now. Bitcoin and the coming CBDCs are both reacting to the same thing, but what’s different about them is who would be served by the adoption of one mechanism over the other.

What’s important to understand is that, similar to the Cantillion Effect, when the underpinnings of a monetary system transition from Thing A to Thing B, the outcomes are non-neutral. One example of this is the Gini Coefficient, which is a measure of wealth inequality.

In the chart below via @WTF_1971 we see how after a period of secular decline under the Bretton Woods system, it suddenly reversed and blasts off right at the inflection point where the global monetary system abandoned its last link to hard money (Thing A) and the fiat era began (Thing B).

All indications are that the coming CBDCs will be carbon-based, social credit schemes, and they are being promoted and implemented by the same vested interests who profited and consolidated unimaginable wealth throughout the prior 50 years of the fiat era – the Cantillionaires.

This path is ultimately doomed, because as I frequently point out, it seeks to extend an industrial era worldview (top down, centrally planned and linear), onto a new architecture: one that is decentralized, self- organizing, adaptive and non-linear.

Because it’s one iteration behind in the level of mental abstraction, it’s like breeding faster horses in an era of cars. No matter how good you get at it, you’re still playing the game on an obsolete playing field and will ultimately be unable to compete on the new one (if you’re wondering why I frequently reference the level of mental abstraction as being such a game changer that ensures the eventual supremacy of networks over nations, I refer you to a relatively obscure book by W R Clement called “Quantum Jump: A Survival Guide For the New Renaissance“).

The only advice I can offer for navigating the coming transition is to be as financially independent and resilient as possible. Do not allow yourself to become reliant on government entitlements and if you are now, figure out a way to end that reliance immediately. That these systems will become tightly coupled with CBDCs and carbon footprint rationing is a foregone conclusion.

You’re going to have to be ready for at least a transitionary period where the lifestyle choices you take for granted today will be priced in terms of carbon credits in the future. If you are reliant on government entitlements, get used to eating plant-based protein patties. If you aren’t, get ready to have to pay more for those Wagyu burgers. A lot more.

Hold as much of your wealth outside of the state run banking system as possible. Bitcoin (off the exchanges, I also like Monero), hold gold, silver, and own cash-flow producing businesses, and multiple revenue streams. If you have a job, start a business on the side. If you own a business, start another one.

Start connecting with people and tribes who are opting out of the current system, because the one we’re in now is either going to come off the rails entirely or try to go full CCP in the near-term.