Central bank digital currencies (CBDCs) aren’t a futuristic concept. They’re already here.
Just look at Nigeria…
In October 2021, Nigeria launched a digital version of its national currency, the naira. It’s one of the first countries to adopt a CBDC.
Nigeria has a population of 200 million – making it the most populous nation in Africa.
The government designed the digital version of the naira, dubbed the eNaira, in part to help the 40 million of its citizens who are unbanked.
That means about one-fifth of the country’s population doesn’t have access to a bank. That makes saving, investing, or building credit impossible.
The eNaira uses blockchain technology, so Nigerians need to create a digital wallet (similar to an Ethereum wallet) to accept and store funds. They can then spend their eNaira on good and services, including groceries and gas.
To get citizens to use the eNaira, the government offered incentives like easy implementation with an existing bank account, a mobile phone app, and a 5% discount on taxis.
But even with those offers, the incentives weren’t enough.
So the Nigerian government doubled down. And in December the Central Bank of Nigeria began restricting cash withdrawals to 100,000 naira ($128) per week for individuals and 500,000 naira ($643) for businesses.
Then the Nigerian government redesigned the currency in a “move aimed at restoring the control of the Central Bank of Nigeria over currency in circulation” and to “further deepen the push to [a] cashless economy.”
So not only are citizens limited in how much they may withdraw, but their existing cash was phased out.
By the spring of 2023, riots broke out in the streets as citizens demanded paper money be restored.
Protesters attacked bank ATMs and blocked streets, and demonstrations turned violent in some cities.
As you can see, the launch of the CBDC in Nigeria has been an abject failure.
But it’s not because Nigerians don’t like digital currencies. According to the BBC, an estimated 32% of Nigerians use decentralized cryptocurrencies like bitcoin.
So they don’t have a problem with crypto. They just don’t want the government forcing a CBDC on them without a cash option.
Nigeria is a cautionary tale for the more than 100 countries experimenting with some form of their own CBDC. It’s also a wake-up call for Americans.
That’s because starting as early as July 26, we could see the groundwork laid for a “digital dollar” in the United States.
The Fed’s Trojan Horse
As I wrote in Thursday’s essay, on July 26 the Federal Reserve is scheduled to launch FedNow.
It’s a payment system designed for instant settlement.
On paper, it sounds like a technological improvement over traditional payment networks.
The current global financially payment system is a dinosaur. It can take days for a check to clear. And wire transfers can take up to a week… if they don’t get lost.
FedNow allows users to settle those types of transactions in hours instead of days.
Those are the benefits. But FedNow could also be used as a Trojan horse.
It creates the infrastructure for the government to issue a CBDC. In other words, a digital dollar.
A CBDC uses a ledger system to keep track of every single transaction. And it’s programmable, so the value of it could be changed at any time.
A government could easily change the rules to fit their whims. Want to stimulate the economy? Reprogram your CBDC so that balances expire after 30 days.
The biggest reason a CBDC is a threat to your financial freedom is that the government can track all transactions on the ledger.
That means it can see every purchase you’ve ever made. And it could reverse your financial decisions if it doesn’t like what you’re doing.
So it’s no wonder Nigerians prefer cash and decentralized cryptocurrencies like bitcoin over the eNaira.
Nigeria’s 32% bitcoin adoption rate is more than double the estimated 14% adoption rate in the U.S., according to Chainalysis. So it’s not digital currencies that pose the problem.
But a centralized blockchain has massive potential for an invasion of privacy. No matter how angelic a government may claim to be, a CBDC creates a massive temptation.
Two Alternatives to CBDCs
I don’t know when the United States will roll out a digital dollar. But FedNow takes us a step closer to that rollout.
And if Nigeria is any indication, a CBDC probably won’t go down too well in the U.S., either.
If you’re looking to move some of your wealth outside the traditional fiat system, I suggest an allocation to bitcoin and gold.
When it comes to digital investments, bitcoin is a must-own asset. You don’t need to go all-in. But you do need to own some now as a hedge against the dangers of other digital assets.
You can think of bitcoin as money that can’t be programmed.
And given the issues we’ve seen with crypto exchanges in the past year, be sure to store your bitcoin in a digital wallet. That ensures there’s no party between you and your wealth.
The other alternative is gold.
The metal can’t just be printed or programmed into or out of existence. Its scarcity and the work needed to bring more out of the earth have made it mankind’s preferred store of value for centuries.
And over time, gold has held its value. Preserving purchasing power is crucial in a world of government-programmed money.
But with every challenge comes opportunity.
That’s why Daily editor Teeka Tiwari recently put together a new playbook to show you how to profit from the potential rollout of a digital dollar.
In it, you’ll learn:
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Step-by-step instructions to securely buy and store your bitcoin.
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The name of a company set to profit from the digital dollar trend.
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The name of a crypto project also set to profit from this trend.
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And a secret way to 10x your money on gold.
I bet those Nigerians protesting the streets today would prefer to have an allocation to bitcoin and gold rather than their government’s digital currency.
And the U.S. may not be far behind.
Good investing,
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Andrew Packer
Analyst, Palm Beach Daily