CBDC: Central Bank Digital Currency

“What can I do to protect my family from a CBDC?” This is another question that people have been seeking guidance on recently.

Today, I would like to provide a crash course on what a Central Bank Digital Currency is, what it may mean for our future, and offer some suggestions on steps you can take.

 

What is a CBDC?

There are many names currently being used to discuss a digital currency in the United States:

• Digital dollar
• Fed coin
• USD coin
• CBDC dollar
• Federal Reserve cryptocurrency
• Project Hamilton
• United States of America CBDC

By mixing and matching the words above, you can even create your own! Right now, there is no official name, as this is still in the “research” phase. However, the last two—Project Hamilton and USA CBDC—are the given names for real research projects.

For this article, I will use “digital dollar” to refer to the US variety, and specific names for those of other countries.

Now that we have established what terms are being used interchangeably, let us quote the Atlantic Council for a definition:

“A Central Bank Digital Currency (CBDC) is the digital form of a country’s fiat currency that is also a claim on the central bank. Instead of printing money, the central bank issues electronic coins or accounts backed by the full faith and credit of the government.”

 

Implications of a CBDC

Depending on who you are, your reaction to the quote above ranged from, “Oh, okay. What’s wrong with that?” to rushing out for more ammo, shelf-stable food, water storage, etc.

Wherever you fall on that spectrum, this definition deserves some closer scrutiny.

First, the source: If you have never heard of the Atlantic Council, it is a Washington, D.C.-based think tank formed in 1961. While it is active on many issues, perhaps the most notable example is helping Facebook fight “disinformation” by deplatforming users in the wake of the 2016 presidential election. This partnership was formally announced in 2018, to “prevent [Facebook’s] service from being abused during elections.”

 

What is a “Fiat Currency?”

To give the shortest possible answer: Fiat currency is government money that is not tied to any physical commodity, such as gold and silver.

The monies of the world were once backed by such commodities, but physical constraints are extremely inconvenient for governments. They almost invariably fancy themselves as above the laws, even the immutable laws of reality.

Usually, if the gold standard is mentioned at all, we are simply told that Richard Nixon “closed the gold window” in 1971. That is true, but the shift away from gold was a long process, and one well worth studying. Murray Rothbard’s short but powerful book, What has Government Done to Our Money? provides an excellent look at this in its 4^th section, titled “The Monetary Breakdown of the West.” The book is available for free in multiple formats, here.

 

CBDC Means No More Paper Money

By now, you may be seeing that this is not simply a response to the emergence of cryptocurrencies, as is claimed by the Atlantic Council’s CBDC website. No, this is merely the next phase of government control. Fractional Reserve Banking, especially once free of the constraints of gold, has enabled governments to commit horrible acts with previously unthinkable speed and scale. (For a quick primer on fractional reserve banking, I wrote about it here.)

See, even without gold and with low reserve requirements, banks still have to have some currency, so you can get cash, they can make change, etc. If there is no physical dollar whatsoever, well…

Government, or its extensions, (like the Federal Reserve) can literally type in any number, in any bank account. Or delete any number, in any bank account.

They will probably ask you nicely to turn in your cash, but this must eventually lead to physical paper money no longer being accepted by banks, stores, or government offices. (Remember the rollout of masks to fight a certain illness in 2020!)

Once that happens, the money you have at First Mattress National Bank (to borrow a phrase from a friend) will be absolutely worthless.

 

What About Precious Metals?

When physical US currency is banned, that means if you want to transact in cash, you will need to use gold, silver, or some other highly desirable, divisible physical good.

This means business with individual rather than stores, as legal tender laws prevent the overwhelming majority of businesses from accepting precious metals. This means that precious metals will be black market money.

There is ample historical precedent for the seizure of precious metals, after all. The nearly universally loved Franklin Delano Roosevelt signed Exectutive Order 6102 in 1933, which banned ownership of more than 5 troy ounces of gold.

 

What About Cryptocurrencies?

Once the US has its own digital dollar, I consider the likelihood of an outright ban on private holding of cryptocurrency to be much higher. I can’t guarantee that, but I do suspect it.

Some crypto has extremely robust features to hide the identity of owners, but “you can’t hide secrets from the future with math” forever, as MC Frontalot astutely warned us. Even if holding crypto is not illegal, trading for goods in crypto could be. This sort of “soft ban” reduces the negative political fallout of a direct ban.

This means black market territory again, as with gold and silver. But with crypto, when the encryption is broken, every single transaction ever is also laid bare.

If you want to buy crypto, go for it. This is just a case against going all-in.

 

What About Barter?

When possible, barter can be a great way to directly exchange something you have for something you want. It removes the “extra step” of money.

For example, if I have 2 dozen eggs to sell and you have an extra shovel, a trade may be in both of our best interests. That means I value the shovel more than the eggs, and you value the eggs more than the shovel. It’s a clear win-win.

I said “when possible,” because there are a few problems with this. In this example, instead of money—which can be traded for anything—I am trading eggs. What if I have a surplus of eggs but need to buy a car? How likely am I to find a seller who will accept 500 dozen eggs for their vehicle?

Unless what you sell is durable, divisible, and accepted by everyone, you will have difficulty. At that point, though, you have money again!

Another problem, if you are running a business, is trying to do economic calculation. How do you determine profit and loss if what you receive as payment are goats, chickens, eggs, cheese, gutter cleaning services, and crocheted scarves?

 

A Moneyless Society

Historically, things like animal skins, shells, tobacco, salt, and even enormous stone wheels have been used as commodity monies. If something like this were to occur again, it will be organic. You can’t plan ahead and stockpile the “right” good, except by pure luck. But you definitely want something to be treated as money. Consider the fall of Rome:

The decline of the Roman Empire was only a result of the disintegration of ancient society which after reaching a high level of division of labor sank back into an almost moneyless economy. Thus towns were depopulated and thus, also, did the population of the countryside diminish and want and misery set in simply because an economic order working on a lower level in respect of the social division of labor is less productive. Technical skill was gradually lost, artistic talent decayed, scientific thought was slowly extinguished. The word which most aptly describes this process is disintegration. The Classical culture died because Classical society retrogressed.

Ludwig von Mises, “Socialism: An Economic and Sociological Analysis”

A complete lack of money means, without question, the deaths of millions of people.

 

What About Trading Services?

Of course, trading services can open a somewhat wider market to you. It could be possible to trade labor on a farm, consulting sessions, firearms training, massage therapy, counseling, or any number of other services on an hourly, per day, or per job basis.

This still faces the same limitations as trading physical goods. (For example, there are only so many massages a person can have per day!)

This too, could potentially become black market activity at some point. It may be easy to fly under the radar now, but the global surveillance state has an unlimited appetite. That means you would be unable to use the court system to settle disputes about your labor arrangements, should they arise.

 

Working with Digital Dollars

You will still be doing at least some of your transactions in dollars. That is, unless you are completely and perfectly prepared to do otherwise forever. So, what should you be doing with those dollars?

Well, for one thing, they are not safe in the bank. The Dodd–Frank Wall Street Reform and Consumer Protection Act, usually just called the “Dodd-Frank Act,” became law on July 21, 2010. It explicitly allows “too big to fail” banks that are in financial trouble to “re-capitalize” using their depositor’s funds. You already know about taxpayer bailouts. This is a “bail-in.”

To be clear: This means seizure of your funds directly, through the bank itself, to keep the bank from going out of business. This alone should inspire you to consider non-bank alternatives.

For your dollars, I believe you should strongly consider properly designed, dividend-paying whole life insurance from a mutual insurance company.

Please note that I am not speaking of life insurance as an investment. I am suggesting that it is the best place to store your wealth in dollars. That is true now and will be even more true in an era of CBDC.

 

Why Use a Whole Life Policy?

• The cash value increases every year. This is contractually guaranteed.
• It’s conservative. No timing the stock market. The value can’t go down. In fact, insurance companies tend to do very well when the stock market is in shambles.
• It’s tax-free. Done right, all growth is never subjected to income tax.
• It can’t be seized by creditors. While state laws vary on the specifics, generally speaking your life insurance cash values are exempt from creditors while you are alive. (Proper estate planning may still be needed.)
• It keeps up with inflation. Designed and utilized correctly, these policies have growth that has historically kept up with inflation very well. This does not mean that it will protect you from hyperinflation. At the time of writing, we do not have hyperinflation occurring in the US. The question is what to do with your money now, not when inflation is 1000% per week.
• It isn’t inflationary. The money in your policy is actually there.
• It earns dividends. When declared by the insurer, your policy will earn dividends. If your policies are through a non-direct recognition company, you earn the full dividend even when you have an outstanding policy loan.
• It’s liquid. Accessing value in your policies is fast and easy.
• It’s flexible. When dividends are declared, you have options on how to use them. Once a policy has been in force for several years, this can mean incredible cashflows.
• It’s an asset that you control. No bank, no government, not even the insurance company itself owns the policy. You own the contract!

It Amplifies All Your Financial Activity

Taking the above together, I will make one more point: It enhances your ability to invest. Remember that this is not an investment by itself. It’s a process, and a platform to build your financial life on. Working this into your business, your stock trading, your crypto purchases, your real estate ventures—this increases the effectiveness of all of those. It doesn’t replace them.

The ways you can use your policies are almost limitless: You can use policy loans for yourself, your business, or even loan funds to others at a markup!

 

What if the Government Changes the Rules?

I understand this fear very well. It seems like every week the rules and regulations we are expected to abide by are changed at the whims of politicians and special interest groups. According to Govtrack.us, “Since World War II (the earliest we have data), Congress has typically enacted 4-6 million words of new law in each two-year Congress.”

It’s also true that the exact rules of life insurance have been tweaked several times in the past. But—and here is the case for acting now—existing contracts have always been honored as written. If you already have a system of policies in place, any new legislation will not affect them. Whole life policies like these are unilateral contracts, meaning they are one-sided, in your favor!

 

Do As They Do, Not As They Say

There’s another reason for this, beyond the historical case. The political class, banks, large corporations, and wealthy individuals have enormous amounts of cash values in life insurance contracts. They use this strategy, and then tell you to do something else, such as “be sure to max out your 401(k)!”

Consider:

• Walt Disney used his life insurance values to fund Disneyland when banks told him “no.”
• James Cash Penney, founder of JCPenney, used his policies’ cash values to bounce back from financial ruin after his stock market positions were wiped out in the Great Depression.
• Doris Christopher, founder of The Pampered Chef, used a $3,000 policy loan from life insurance to create the brand which was later purchased by Warren Buffett’s Berkshire Hathaway.
• Bank-Owned Life Insurance, or BOLI, is an enormous asset class. BOLI holdings totaled $137.95 billion in 2012, and this has only increased since then. This data is available for every branch of every bank in the United States. Pull a financial statement from the FDIC and look for the “Life Insurance” line.

I’m suggesting you do as they do, not as they say. If they kill this golden goose, they are also killing their own.

 

When is a Digital Dollar Coming?

The simple truth is, I don’t know.

A few countries already have an active CBDC. Tracking global progress is suspiciously easy. There are interactive trackers from the Atlantic Council and CBDCTracker.org, which is a joint effort from the Boston Consulting Group, Digital Euro Association, and Firmshift. Both trackers have interactive maps and news articles relevant to each country.

Nigeria already has an active “e-Naira,” and the Bahamas already have the “Sand Dollar.” Beyond this, there are currently 15 other CBDCs operating pilot programs.

Joe Biden is advancing this agenda and the Federal Reserve issued a white paper in January 2022 that outlines perceived benefits. The longer this research phase lasts, the longer you have to prepare. But no matter how much posturing there is from “opposition” to the idea, this is a massive advancement in the growth of government. It’s ultimately too good to pass up, so make no mistake: This is “sooner or later,” not “maybe.”

 

The Bigger Picture

Decisions like these are not made in a vacuum. Much to the detriment of mankind, the push for CBDC is part of a bigger picture. Just ask Klaus Schwab, the founder of the World Economic Forum and author of COVID-19: The Great Reset and The Great Narrative: For a Better Future. (Those are real books, despite some calling The Great Reset a “conspiracy theory!”) In November 2021, Professor Schwab said this in a statement about WEF’s Digital Currency Governance Consortium:

“This consortium has built on our long history of public-private cooperation to accelerate necessary and timely conversations for responsible digital currency deployment. It has convened the world’s leading policy-makers, payment providers, banks, civil society organizations and start-ups to identify and address critical gaps in research and policy guidance.”

The CBDC Consortium published its findings here, in a series of whitepapers.

 

CBDC Action Checklist

Finally, I want to lay out action steps. It’s never my goal to end on a bad note! Worrying about what’s to come is not helpful; only action can transform us into the people we need to be for the future.

Right Now

• Get out of major cities. Seek a culture where you can maximize your autonomy.
• Get some land. I recommend at least 5 acres, if you can. Get more, if possible, but certainly no fewer than 2 in the worst case.
• Build your network with like-minded people who are geographically close to you. You can’t do everything yourself. Make friends and build up your inner circle.
• Stockpile what you can. If you have the means to warehouse enormous quantities of food and supplies, you may want to consider doing some of that. If not, buy double or triple of items with when you buy them. Learn to can food for longer preservation.
• Learn at least one skill with barter potential. If you haven’t already, learn something that you can do to trade in a bad situation. Woodworking, knitting, sewing, leatherworking, small engine repair, car repair, gardening, chopping firewood, etc. The list is very long, but “see a need, fill a need” is the right way to consider this. Make it a hobby, make it fun, so you will continue to improve.
• Keep some cash on hand. No more than 3-6 months of expenses. People are used to accepting cash, so it stands to reason it will still be accepted for the immediate future. Just because you have taken the time to educate yourself and prepare accordingly doesn’t mean that your neighbors have.
• Get some precious metals in varying sizes. There is no magic amount to hold, but at least enough to buy a few essentials from sources that will accept the metals. For convenience, try to have a variety of sizes so you can make change. Pounds, ounces, half ounces, quarter ounces, grains, etc.
• Become your own banker by using the Infinite Banking Concept®. If you don’t like me for some reason, then work with someone else, but I urge you to lay the groundwork sooner rather than later. Start by reading Becoming Your Own Banker, by R. Nelson Nash.

After You Move

• Become your own boss, or find a smaller company that aligns with your values. It is increasingly clear that major brands act in lockstep to enforce desired social outcomes. A digital dollar will likely roll out like masks did. First it will be a suggestion, with “no plans” to remove physical cash from society. Mandates and legal consequences will be announced later.
• Learn to garden. A small garden is infinitely better than no garden. Expand each year, as you learn.
• Have backup plans. How will you get clean drinking water if your primary method fails? How will you meet your electricity needs if your primary method fails? Do you have an alternative to gasoline? Do you have a backup cooking method? What about heating and cooling your home? For everything that you must have to survive, consider a Plan B. After that, consider a Plan C.
• Explore More Food Options. Hunting, fishing, trapping, foraging. These are somewhat region-specific, and probably best learned by talking to locals.

 

Be Ready

This may read like an apocalypse checklist. The reason is simple: When a CBDC is nigh and physical cash is “over,” there will almost certainly be a national (or even global!) “bank holiday.” This means access to bank accounts will likely be suspended. It could be one day, or it could be weeks. You can’t control this, so you need to focus on what you can control.

To some, it may also seem like this list isn’t enough. It’s true, there are many more things that could be added, but this is what I consider to be the non-negotiable items. These must be priorities! Make progress every week on these. I want you and your family to be ready for the worst. If you need to leave the city and find some land, reach out. Always happy to have more good neighbors in the Ozarks, and I know several realtors across the country. Even if you are already on the right property, I am here to help you get started with your financial foundation. Whatever your situation, you can contact me here.