The Digital Dollar And Things To Come

Banks And The Digital Dollar

Chris Argyrople, of Pivot Analytics

Paper money is going away in the very near future.  Sooner than you realize, paper money will be replaced by a “digital-USD”.  Money is already digital.  Your bank and brokerage accounts are book entries in a digital database.  These book entries are claims that can be exchanged for paper money or paper stock certificates.  Governments, including the US government, will be mandating the exchange of all paper money for its digital “upgrade.”  Why and when will this happen?  More importantly, what implications does it have for investing?

Regarding the when, its going to happen soon, very soon.  Within 7 or 10 years, paper money will be history and not legal tender anymore.  China is already testing a digital RMB, so our leading nation is well behind its competitor, and once China rolls out its digital RMB in 2023, our government will spearhead the rollout of our USD version.  In reality, China is already fully digital.  Nobody in China uses cash anymore, and credit cards are a very small piece of their market.  Chinese people use Alipay and other digital payment mechanisms on their phones. 

Later this decade, once the digital dollar is in place, the government can finally implement policy more effectively.  For example, right now, the main way that the government “prints money” is to buy bonds in the open market and hope that banks will lend the money.  The lent money is the increase in the money supply.  This system has contributed to the wealth gap, and it has also led to a lot of leverage in the system. 

The Feds are sick of trying to make the banks lend then regulating them because they are over-levered.  It’s a faulty system and it is likely to be replaced by digitally created money supply which can then be sent out to the people directly.  This will enable universal basic income (UBI) models to proliferate, and it will finally be easy enough for the government to make inflation go higher when they want. 

It will also wreak havoc on the underground economy, specifically drugs and tax evasion.  With the digital dollar, everything will be traced and tax evasion will drop substantially.  Giving the government more power over the money supply (disintermediating the banks) will eventually be very inflationary. It could also be negative for the dollar exchange rate, but ultimately all governments will go this way so the FX rate implications are unclear at this juncture.  What is likely is that an aging workforce will get UBI payments in an inflation-first environment.  The government will try to inflate away the massive debt obligations, and they are likely to be successful. In 10 or 15 years, we will see massive inflation on the order of the 1970s or even worse. The Fed is on record saying they want inflation, and the politicians and public are addicted to the stimulus, so its print print print until we finally get sustained inflation.

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