China’s central bank is giving away millions of dollars’ worth of digital cash…

It’s all part of a plan to eradicate physical cash and replace it with a new, digital-only national currency.

Here’s how ABC News Australia reported it…

China’s central bank will issue 10 million yuan ($2 million) of digital currency to 50,000 randomly selected consumers in what some see as the country’s first public test of the digital yuan payment system. […]

Starting Friday [October 9], any individuals in China’s southern city of Shenzhen can apply to join the program through the country’s big four banks. But only some will be awarded a 200-yuan “red envelope” via a lottery, according to the local Government and the lenders.

Anyone in Shenzhen can apply to join the lottery […], while winners will be awarded the red envelope on October 12 after they download an app for the digital currency and register for a digital wallet.

This represents the beginning of a massive shift in what money is… and how we use it.

But you won’t see much about it on U.S. cable news…

The U.S. presidential election on November 3 is eating up nearly all the airtime.

But the story out of China is another milestone on the road to the cashless society I (Chris Lowe) and my colleagues at Legacy Research have been warning you about.

And it has profound implications for your wealth, your privacy… and your freedom.

So today, I want to recap how these central bank digital currencies (CBDCs) work… and why they represent the greatest concentration of power in central banking in history.

I’ll also show you how China’s program is part of a worldwide race among central bankers to issue digital-only currencies – including a digital-only U.S. dollar.

Then, later in the week, we’ll look at why CBDCs will nuke whatever’s left of your financial freedom. We’ll also take a deep dive on what CBDCs mean for our favorite private, decentralized currencies – bitcoin and gold.

First, what is a CBDC?

We’ve been banging on about the coming cashless society for years in these pages. So regular readers will already have a good idea about what CBDCs are… and how they work.

But if you’re new to the conversation, I’ll fill you in…

CBDCs are based on cryptocurrencies such as bitcoin. They will exist in purely digital form. You’ll send and receive them via a wallet app on your smartphone.

But under the hood, CBDCs will be radically different from bitcoin and other private cryptocurrencies in two key ways.

Most important, CBDCs will be highly centralized…

Decentralization is a core principle behind bitcoin and other private cryptocurrencies.

It just means no one person or entity controls bitcoin. Network participants called “miners” verify all bitcoin transactions through a process called consensus.

Meanwhile, tamperproof computer code automates new bitcoin supply.

By contrast, central banks will have strict control over CBDCs. They’ll still decide how many new coins to issue… and whom to issue them to.

CBDCs will give central bankers even more control over the money supply than they have already…

Today, commercial banks create most of the dollars in circulation by making loans to credit-worthy customers.

As it stands, for instance, the Fed has $7 trillion on its balance sheet. But the overall money supply in the U.S. is closer to $18 trillion.

That’s not a perfect system. But at least it’s somewhat decentralized.

Individual banks decide whom to lend to and how much to lend. This process happens hundreds of thousands of times a day across the country.

In a world of CBDCs, central banks will be able to send cash directly to consumers for the first time. This will allow them to take over the reins of creating and allocating money in society from commercial banks.

That’s why I said this is central bankers’ greatest power grab in history. CBDCs allow them to achieve near total control over all economic transactions because CBDCs will give them near total control over the money supply.

This means CBDCs will still be vulnerable to inflation…

You may have heard colleague Nick Giambruno talk in these pages about how bitcoin is the world’s “hardest asset.”

In other words, it’s hard to produce more of…

The bitcoin network uses the same amount of electricity per year as the entire country of Switzerland.

Bitcoin miners have to run high-spec computers to solve complex math puzzles before they can verify transactions on the network and receive new bitcoin as a reward.

Every four years, new supply gets cut in half. This is known as the “halving.” This will go on until 2140. That’s when bitcoin will reach its hard cap of 21 million in circulation.

On the other hand, central banks will be able to issue CBDCs – at will. And you can expect them to ramp up new issuance in the years ahead.

Colleague Jeff Brown has been advising lawmakers on Capitol Hill about digital currencies as part of his work with the Chamber of Digital Commerce. Here’s what he reported back to his readers…

CBDCs will have a monetary policy similar to what’s in place today. The government will still be in control. We can expect it to keep the digital printing press running hot.

The Fed will even invent new ways to implement monetary policy. For instance, it will now be able to deposit funds directly into consumers’ digital wallets. That would have been a huge help at the start of the pandemic. Instead, the government had to send out many stimulus checks in the mail.

The powers this new currency will give the government don’t stop there. Jeff again…

CBDCs also make negative interest rates possible. The Fed could deduct interest from our digital wallets each month to encourage spending in hopes it would stimulate the economy.

Plus, the taxman must be foaming at the mouth. A digital-only dollar will allow the IRS to monitor and tax every transaction you make. Doing business off the books won’t be possible. Every transaction will leave a permanent digital record.

Given these clear downsides… you may be wondering why people would be willing to accept CBDCs in the U.S. and other Western nations.

It comes down to human nature…

As I mentioned up top, China’s central bank is giving away free money as part of its CBDC test.

That’s what will happen in the U.S. and other Western nations, too.

The proposition is simple… The government will keep topping your bank account up with $1,000 twice a month (or something similar) as long as you receive and spend your funds via a CBDC.

CBDCs would make universal basic income super simple to implement, too. That’s the proposed government program in which every adult citizen receives a set amount of money on a regular basis from the government.

And it’s just human nature that few people are going to turn their noses up at free money.

Also, the U.S. doesn’t want to slip behind China on this. Here’s Jeff again…

This is a wake-up call for the U.S. Washington has been slow to adopt this technology for the U.S. dollar. But if, in the months after launch, China’s CBDC is widely adopted and used, it will light a fire under the U.S. government to do the same.

Mark my words: The age of regular fiat currency is coming to an end. A new crypto-fiat hybrid is on the way.

Like I said up top, there’s a lot to unpack here – including the effects of CBDCs on the value of gold and bitcoin and on your financial freedom.

So make sure to look out for more on this subject from me later this week.



Chris Lowe
October 12, 2020
Bray, Ireland