13.10.2020 – Special Report. What we have long been prophesying at this point is now taking shape: leading Western central banks are preparing their own digital currency. This should be the beginning of the end for Bitcoin, Ethereum and co.
The Empire strikes back
Here we go: seven central banks have defined the initial conditions for issuing their own digital currencies, as reported by Reuters. This is the conclusion of a report published on Friday by the Bank for International Settlements (BIS). The alliance brings together the Federal Reserve, the European Central Bank (ECB), the Swiss Federal Reserve, the Bank of Japan, the Bank of England, the Bank of Canada and the Swedish Riksbank. It is also joined by the BIS.
E-currency in everyday life
Central Bank Digital Currencies (CBDC) will be able to coexist with cash and other forms of money. Monetary stability should not be jeopardised. The digital currency must also promote innovation and efficiency in payment transactions. And further: consumers should be able to use digital currencies easily, and there should be very little or no costs. So far, none of the seven central banks involved has decided to introduce its own digital currency. But what is not yet the case can still happen.
The Chinese central bank, which is already testing a digital renminbi in a pilot phase, is not among them. Which in turn also poses a threat to alternative e-foreign currencies.
Away with the cash
You can already anticipate what is to come: An e-currency amounts to the abolition of cash, which eliminates undeclared work and pleases the tax authorities. Criminals will also have to dress warmly. Because when almost the entire western world introduces its own digital currency, questions will soon be asked by the authorities as to why a private investor would still want to buy Bitcoin or other cryptos. So Bitcoin buyers can only be gangsters who want to launder and hide money.
Money laundering via Bitcoin
It plays into the hands of the state power that recently Elias Strehle from the Blockchain Research Lab and Lennar Ante from the University of Hamburg warned against a money laundering trick. According to them, criminals could use “exclusive mining” to disguise illegal money as income from Bitcoin mining. According to the report, this works by someone placing transactions through a private channel and giving an individual miner or pool the exclusive right to confirm the transaction and hand out some cryptos as a reward. These are added to the block chain like a normal transaction. In other words, there would be a “disguise of capital transfers”, using alleged transaction costs to evade taxes or launder money. Simply by sending Bitcoin to an exclusive miner, bribing him and making him charge an absurdly high transaction fee.
Bypassing commercial banks
But central banks have another goal with their own CBDC: to bypass the commercial banks when inflation rises. For example, Alasdair Macleod stated on Godlmoney.com that by issuing e-currency directly to the public, central banks could directly achieve the desired inflation. We add: In fact, commercial banks tend to park cheap central bank money with themselves to consolidate their own balance sheets. This way, stimuli do not flow into the economy, but support staggering zombie banks.
Protection against credit crunch
Maclead also argued that the direct infusion of e-currency could prevent a credit crunch triggered by banks: „A successful introduction of a CBDC could eliminate the impediment of contracting bank credit which occurs at the end of every credit cycle.“ Und weiter: „The further benefit for central banks is it will increase their power as an organ of the state at the expense of commercial banks, potentially becoming more important than the state itself.“ Zwar zeigte sich der Experte skeptisch: „However, the current economic situation is deteriorating more quickly than a working CBDC can be introduced, so the whole exercise is likely to be too late to have any relevance to monetary policy in the foreseeable future.“
Risks with Bitcoin and co.
But we would partly contradict this. It is not a foregone conclusion that the economy will collapse before CBDCs are introduced. In fact, in the event of a crash, the Cryptos would have the status of a reserve currency, which would be bullish for traders. Nevertheless, there is a high probability that sooner or later central banks will end the unpopular experiment of uncontrollable digital currencies.
Perhaps it will take months, perhaps several years. While it may not be technically easy to build a government-controlled e-foreign currency, there will certainly be skirmishes over the lead in the block chain. But the central banks have time and infinite resources at their disposal. Anyone investing in Bitcoin to avoid the gutting of the intrinsic value of money by the printing press – in other words, ever new stimuli and quantitative easing – should keep this in mind. The Bernstein Bank is keeping an eye on the matter and wishes you every success!
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