With the complexities comes an insidious burden and a blindness that human nature finds oddly appealing. Complexity is often equated with sophistication, but wrongly so. Objects, ideas and complex systems tend to arouse admiration. Complex problems tend to be dealt with complex solutions.

Unsurprisingly, such is the state of monetary affairs.

The problem with complexity is that gradually adding it leads to exponential (or multiplicative) results. Before you know it, a complex passage through a monetary obstacle becomes a labyrinth in which even its creators can easily become trapped.

This seems to be the state of “money” today. What was once a simple object of intrinsic value – say a silver or gold coin – exchanged for a simple transaction, is now a “promissory” object “representing” monetary value flowing through a complex web of financial rules , boundaries, waypoints and derivative processes simply to get to point B (a seller) from point A (a buyer).

Fiat on steroids

Instead of simplifying the process and getting back to the basics of how a currency works, confident executives and legislators seem obsessed and seduced by a seemingly “cutting edge” solution to monetary issues: digital bank currencies. central, aka CBDC.

A CBDC environment is essentially the fiat currency system on steroids. Of course, it innovates and optimizes the potential of fiat. But do its benefits outweigh the risks? Let’s take a step back and look at both.

What are CBDCs? A brief explanation

CBDCs are digital currencies issued by central banks rather than commercial banks. Their values ​​are pegged to that of a national fiat currency, in our case, the US dollar.

Why do central banks, such as the Federal Reserve, seek to implement CBDCs?

• It is free from credit and liquidity risk (read: the Fed can always print more money, right?).
• Cross-border payments can be streamlined with greater speed and efficiency
• It ensures the international dominance of the US dollar, if nations go the CBDC route
• It promotes financial inclusion, enabling the “unbanked” to finally be “banked”
• It can increase transaction speed and efficiency without those pesky business banking fees.

“What’s wrong with these innovations?” you can ask. The risks are eclipsed by the brightness of the solutions. In short, what is potentially at stake is the entire financial system. Let’s take a step back and explain this.

A SWIFT death?

SWIFT is an interbank messaging system used by most of the world to make cross-border payments. It facilitates global trade.

At this year’s Global Blockchain Business Council symposium (on a panel adjoining the World Economic Forum’s annual Davos summit), Mastercard CEO Michael Miebach made a seemingly tongue-in-cheek comment that drew collective gasps from the crowd. .

When asked if SWIFT could still exist in five years, Miebach replied “no”. What to replace SWIFT with? Maybe CBDCs.

A seemingly efficient “evolution” of the current system, CBDCs add multiple layers of complexity that go far beyond the technological challenges of cross-border trade. As you can imagine, such a monetary paradigm shift would not only disrupt the commercial status quo, but would penetrate deeply into the principles that define the monetary function, down to the practical financial activities performed by each individual citizen.

The American Bankers Association (ABA) is well aware of (at least) the business risks of implementing CBDCs. And he made his position clear when submitting his comments on the Federal Reserve Board’s discussion paper “Money and Payments: The US Dollar in the Age of Digital Transformation.”

ABA’s 2 cent contribution to the future of money

The ABA’s comments cut right to the heart of the matter in the first four paragraphs. The first point, that the implementation of CBDCs could “change the structure of the US financial system,” speaks to the risks that CBDCs pose to the relevance of the commercial banking system. After all, if citizens can do business with the Fed, why use a commercial bank?

In the second point, the ABA argues that in a “real economy” there is “a lack of compelling use cases where the CBDC provides benefits superior to those available from other existing options.” Besides process streamlining and cost efficiency, ABA might be right. But again, isn’t the goal to make transactions a little simpler, more efficient and profitable?

It’s the third point that strikes, depending on the principles you espouse. I will quote the most relevant part of the paragraph in its entirety:

“In developed economies, public money, which includes cash and accounts held directly at the Federal Reserve, accounts for about 5% of the money. The remaining 95% is private money. … The introduction of a CBDC would be a deliberate move to shift that balance to public money.

Does the ABA warn that implementing the CBDC would “socialize” (with a capital S) the “private” wealth of every American?

There are many other risks to a complete CBDC system that are beyond the scope of this article. For example, what would happen if the Fed decided for some reason to implement negative interest rates? This means that the Fed can force you to spend money since your savings funds will lose value.

It also means that the Fed would have full control over the money supply, printing at will (especially if the government runs out of funding for another fiscal spending project).

A simpler and “healthier” solution to global money?

In 2021, central bank gold purchases were 82% higher than in 2020, according to the World Gold Council (WGC). The WGC also expects central banks to be net buyers of gold in 2022.

Currently, rumors are circulating on social media that physical silver is being withdrawn from Comex vaults at record levels. These actions on the periphery of dominant attention indicate that something may be afoot. But are these simply disjointed maneuvers aimed at short-term favorable positioning, or do they indicate a longer-term response to changes in the monetary environment?

Although there are many articles regarding monetary curiosities and oddities that we can point out, such a discussion would be beyond the scope of our purpose, which is very narrow: the monetary system is too complicated, and adding even more complexity to it may overload the foundation of what, essentially, was born out of a simple transactional relationship.

Isn’t it time to go back to the gold standard? After all, the fiat system seems to have brought nothing but rapid currency devaluation, skyrocketing national debt, excessive fiscal spending, corporate moral hazard, and increased global wealth inequality. social.

GSI Exchange is the exclusive reseller of the Gold Standard coin in the United States and is currently the only way to set up a Gold Standard IRA in America. For more information on this UK Royal Mint GSI Exclusive Gold Standard coin, visit us at gsiexchange.com/gold standard or call 833-GSI-GOLD.

GSI Exchange is a retail gold and silver dealer in Palm Beach Gardens, Florida and does not provide tax, legal or investment advice. When making an investment decision, please consult your tax advisor or financial professional.

By Anthony Allen Anderson, Senior Partner