To say that the Dollar's been under pressure recently is quite an understatement.
The dollar index has fallen significantly as investors across the globe look elsewhere for safety; at home, "real" yields on US Treasuries continue to sink far below investment-worthy levels.
All of this is just the tip of the iceberg.
For most Americans, the value of the Dollar is the ultimate measure of wealth. When the Dollar falls, wealth falls. And right now, the Dollar is under threat on three separate fronts: the geopolitical environment, the monetary landscape, and the commercial realm.
The Geopolitical Threat: Commercialized SDRs
In a G20 summit, held in 2009, Zhou Xiaochuan, Governor of the People's Bank of China, made a shocking assertion: "the International Monetary Fund's (IMF) Special Drawing Rights (SDR) should replace the Dollar as the world's reserve currency."
There were a few problematic aspects of this assertion at the time. First, the IMF would have to operate like the world's central bank (the global lender of last resort). Not the easiest thing to implement or coordinate.
Now in 2020, with the addition of Coronavirus, the financial media can't stop reporting about SDR's and the sudden need for them.
But there's an even more fundamental problem: the SDR isn't really a currency--it's more of an accounting unit in which members are issued credits.
There are workarounds, however. For instance, China (and other interested nations), can begin issuing SDR-denominated treasuries. A tricky maneuver, but certainly achievable with blockchain applications.
Investors would probably find this rather strange (most are unfamiliar with SDRs) and quite risky, thus demanding higher premiums. Still, it may also be seen as the cost of getting out from under the US dollar's control.
And for some nations, the cost just might be worth it.
On October 12 - 18, the IMF meets to revalue its SDRs. Unlike previous meetings, this one is rumored to finalize a global currency reset--imagine a new "Bretton Woods."
The pressing concern is that the IMF may opt to remove the US from the SDR basket, reducing the US's veto rights on the global stage.
Removing the Dollar would mark the end of the US dollar as the world's reserve currency. Once toppled, the SDR will eventually replace it.
What this means to your dollars and hard-earned wealth is a sudden and massive devaluation.
Your dollars will be "worth less"--perhaps bordering on "worthless"--in a matter of days if not hours.
That's just the first threat.
Trouble At Home: The Digital Dollar, or Fedcoin
Last month, the Senate Banking Committee and the House Financial Services Committee held hearings to discuss the digitization of the Dollar, better known as "Fedcoin."
Ron Paul criticized these hearings, warning that it's the "first step toward making fedcoin a reality."
The Fedcoin idea isn't new to Washington DC. Certain members of Congress have been entertaining the idea for months. It also coincides with general concerns across the globe regarding the creation of blockchain-backed national currencies.
Not surprisingly, the Fedcoin idea is gaining traction. It was initially included in the coronavirus spending bill, though dropped in the final version.
Those in Congress supporting the Fedcoin project see it as a step toward providing the controversial and yet much dreamed-about "universal basic income."
But there's a dark side to this too. Imagine the Federal Reserve monitoring your every purchase in real-time. Imagine that information being shared across various government agencies, such as the FBI or IRS. Your financial privacy will be virtually non-existent.
Combine this with universal basic income--your money, digital funds appearing in your bank account. This may sound appealing, as nobody would turn down free money, except that the money isn't free.
Your financial privacy and transactional freedom is part of the price you'd pay for this income. Your money would be completely centralized and subject to manipulation for monetary and fiscal purposes. It would be as easy to dilute your funds as it would be to applicable taxes and charges.
Essentially, the price you pay is submission to a central government--not the same picture of American democracy and capitalism that our founders envisioned over two centuries ago.
Come to think of it; the idea is quite un-American.
And the second-level effects are just as bad if not worse, as Ron Paul explains:
"Fedcoin would not magically increase the number of available goods and services. What it would do is drive up prices. The damage this would do to middle- and lower-income Americans would dwarf any benefit they receive from their monthly "gift" from the Fed. The rise in prices could lead to Congress regularly increasing fedcoin payments to Americans. These increases would cause prices to keep rising even more until we face hyperinflation and a dollar crisis. Of course, we are already on the path to an economic crisis thanks to the Fed. Fedcoin will hasten and worsen the crisis."
Hyperinflation, the death of decentralized or private cryptocurrencies, the loss of financial and transaction freedom... that's the price you pay for digitizing the Dollar.
Sure, this may accelerate the collapse of the fiat money system. But it appears as if the cure may be much more dangerous to the economy and our democracy than the illness.
In a sense, Fedcoin would be the "rebirth" of the Dollar, but in its worst form possible.
Fedcoin depository wallets are already advancing quickly with bill SIL20449 being heard multiple times before the committee. This bill aims to create a digital wallet for every Man, Woman and Business by January 1, 2021!
That's the second threat. And finally, the third...
Commercializing the War on Cash
There's some light to be found in Mastercard's recent move toward making Wirex the first crypto-native company to be granted principal membership in Mastercard's expansive network.
A move toward innovation amid a "maturing" crypto market, MC customers will be able to buy goods with select cryptocurrencies, hold and exchange multiple cryptocurrencies, and convert cryptos to fiat cash and vice versa.
Then there's Visa's patent for the Dollar digitization. Visa's patent calls for the destruction of all fiat currency in circulation!
Well, only 20% of the population in certain countries hold cryptocurrencies, according to Statista Global Consumer Survey data (2019). Imagine that number being forced to 100% by 2021.
Any competition to the fiat system holds some promise, as it rivals central banks' monopolies over fiat money, in a sense usurping central banks' powers of manipulation.
But there are still quite a few problems with this scenario. Digitizing payments speed up the eradication of physical cash, giving central banks ultimate control over the financial system.
The government's insatiable desire for complete control is why I believe we are seeing a National Physical US Coin Shortage now!
Banks are reportedly paying 5% for coins if you bring them in, and circulating them to business' in need, but if business' are shut down, who requires change?
I believe these coins are being destroyed as banks ready to hold Cryptocurrency in place of your Dollars as the Office of Comptroller of Currency has recently approved US Banks to custody cryptocurrency LAST WEEK!
All of this digitization makes citizens vulnerable to electronic infrastructure disruption, more government and central bank manipulation, extraneous fees for electronic transactions, financial monitoring, and cybersecurity threats.
"But private cryptos are 'private'" you're probably thinking. Yes, they are. But the platforms by which they are transmitted and stored--such as Mastercard, Visa, and others that may follow--are still subject to government oversight, regulation, and legislative coercion.
Besides, cryptocurrencies are electronic currencies, meaning that the privacy and access they seemingly present are not as robust as physical cash, gold, or silver stored away in a private depository.
And remember our mention of the Fedcoin? That will be a major game-changer--and not a good one--for all private cryptocurrencies.
In the end, however successfully the crypto market flourishes, tangible and private assets will likely be your safest bet.
The Bottom Line
Innovation can be exciting and tempting. A global digital currency, a federal digital currency, or cryptocurrencies, in general, all make for exciting headlines.
There have been many semi-successful innovations spanning multiple eras, some of which have lasted, and others have failed.
Take a look at the basic things you rely on daily: chairs, tables, plates and silverware, transportation, four walls and a roof, a bed to sleep on, etc. These reflect multiple innovations but with a single theme lasting thousands of years.
This applies to money. The traditional concept of money holds that it must be a store of value, accessible (meaning tangible), scarce (meaning, discoverable but not manufacturable), transportable, divisible, and durable.
Any form of money that doesn't live up to these standards is simply not robust--or not "sound"--no matter how innovative it may appear. Sometimes the "old" prevails over the new. And that's why for millennia, across countless eras of human civilization, gold and silver have always had their reckoning. They're the only forms of sound money out there.
The Dollar will eventually collapse. But that just may be its fate, as with all fiat systems.