The three futures of digital money

Choose one: central bank, corporate, or decentralized

Yan Pritzker
Nov 2, 2019 · 6 min read
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The Future of Digital Money

As money rapidly turns digital, we must contemplate three possible futures of money: central bank managed, corporate issued, and decentralized.

But first, a brief detour for some history.

Most people reading this, being younger than 75 years old, have known money as something the government issues at will, without any backing. In fact, the current global financial system, which hinges on the US Dollar as the world reserve currency was born as recently as 1944, was stripped of its gold backing only in 1971, has created massive inequality, and may in fact be on its way to a bitter end.

We are now witnessing the next rapid transformation in the nature of money. The vast majority of dollars in existence are already digital entries in bank databases. Many of us swipe our credit cards or wave our mobile phones or watches at payment terminals without giving much thought to the implications of such a system: every payment is now controlled and surveilled by an intermediary, whether a corporation, or government.

If we want a glimpse of the future, we can look to China, where 86% of the population already uses digital payments. While global penetration of mobile payments is standing at a modest 34%, it’s not hard to see that with exponential growth, we will likely see the vast majority of payments go digital within a generation.

Once payments go fully digital, we can expect one of three futures, depending on who controls the production and transfer of digital money.

CBDCs are no longer a fiction. Nearly every major central bank is either planning to launch or planning to investigate issuing their own digital currency. A number of interesting (as in “May you live in interesting times”) things become possible in this world. The first of these is negative interest rates, which allow the bank to make your money evaporate over time unless you spend it, as per this paper from the IMF:

In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.

If the thought of your money being stolen from you automatically in order to “stimulate the economy” is scary to you, good. You’re still living in a world where negative interest rates haven’t been normalized. On the other hand, if you’re reading this from a future where this is the new normal, then just remember: your predecessors were warned, and they did nothing.

The second thing CBDCs allow for is much greater surveillance and economic censorship. China’s already playing this game full force. Latin American dictators also love economic censorship, so here’s another beauty from the BBVA:

CBDCs are Central Bank-issued instruments that combine cryptography and DLTs to achieve four possible general goals:

• Improve interbank settlement
• Digitize cash to improve efficiency in management and payments
• Develop a new monetary policy tool to overcome zero-bound interest rates 😱
• Increase surveillance
and reduce financial system instability 😱

This future is exemplified by the likes of Libra, Hashgraph, Ripple, or Telegram. These companies or corporate conglomerates expect us to buy their corporate issued tokens and treat them as money in the digital world, while they hang on to our “real money” and earn interest on it in the real world.

This vision of the future is quite bleak. For a visual, look to the movie Wall-E, where a giant corporation called Buy-n-Large takes over the entire world, to the point where the de facto leader of Earth is the CEO of BnL.

If this future sounds preposterous, simply consider what you believe in if you’re buying up tokens of Ripple, Hashgraph, Telegram, Libra, or any other corporate issued money. If these tokens do indeed become world money, then the people who issue them will be the wealthiest people in the world, will own a giant proportion of world money, and will be our de facto leaders, with the oligarch class of token fund bros following close behind.

The peddlers of such systems will sell you awful lies. They may even possibly be so deluded as to believe them for themselves. Does Zuck really think he’s banking the unbanked with Libra? He actually might. Maybe he intends in full faith to maintain the Libra currency peg basket in perpetuity. But will this hold true of Supreme Chancellor Zuck III, his great grandson? I don’t know. I wouldn’t want to find out. Every currency that was ever backed by something of value has had that peg broken.

Not only do we have to trust these corporations with our money, but this system has all the same properties that the CBDCs do, since they ultimately operate under the watchful eye of governments, who will surveil and censor to their heart’s content in the name of protecting us from ourselves. Potentially worse, these new corporate behemoths could overpower states, creating the very world Wall-E warns us about.

Personally, I don’t think any of the above is going to happen. And the reason is: we now have Bitcoin.

Those of us living in America or other constitutional democracies fundamentally believe that limiting the state’s power is a good thing. Yet we give the state unchecked power to spend money. We have seen in practice that the debt ceiling is a charade, and that the government creates money whenever they want. Fiat money, backed by nothing, is printed out of thin air to fund perpetual wars.

While a constitutional democracy is decent at preventing any one branch of government from taking too much control, it is not immune to corruption by bribery, whether the outright illegal kind or the legal kind we call lobbying. When the state wields power over the monetary press, it never ceases to expand, as money creates power and power creates money in a perpetual cycle. It doesn’t matter which party is in charge when money is at stake, and the game is who can get their hands on more of it first.

Bitcoin fixes this. With Bitcoin, the monetary policy is fixed in stone, and enforced and audited by every node on the network, preventing anyone from being to arbitrarily print more. Rather than giving the state monopoly over money production, the production of bitcoins is decentralized, by allowing anyone who commits hardware and burns electricity to participate in securing the network and earning bitcoins in reward.

As a voluntary system, people can now choose to save some of their income in Bitcoin, regardless of where they live, or what money their government imposes on them. As they build up a stash of BTC, they amass sovereignty and optionality to escape their country with their wealth secure, if their circumstances become dire.

The existence of the Bitcoin option is itself a check on misbehavior on the part of the state. As more people acquire these coins, they opt out of the fiat system of their state, eventually gaining the power to move freely in the world to a jurisdiction that offers them the freedom they seek. Over time, this defunds autocratic states, as they lose the human capital they require to function.

All money will be digital in the future. Whether it happens in your lifetime or in the lifetime of your children and grandchildren is relatively unimportant. What’s more important is that we now have freedom of monetary choice, thanks to Bitcoin. If you believe that free and decentralized money is the only money of the future, you know what to do.

Buy Bitcoin.

Not sure how bitcoin works?

Buy Inventing Bitcoin on Amazon for a quick two hour read covering the why and the how.

Bitcoin, not Blockchain

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