Digi-Dollars

I have mentioned the possibility for governments to introduce their own electronic monies. So now that European central banks have actually been working on a digital Euro and the congressional democrats initially tried to include a digital dollars provision in an early version of the Coronavirus relief bill, its worth going into it a bit more. We are now in the ending phase of the same financial cycle that has brought down many societies including mighty Rome: Government has spent itself into big trouble. But for the first time the sovereign debt problem concerns not just one country, but the Eurozone, North and South America, Japan, and to a lesser extent (that is hard to actually know) China.

Governments always do the same thing in these times: hunt taxes for as long as they can to keep themselves propped-up. The response of private citizens eventually is also to revert to the  same move:  to withdraw their money from the accounts they hold with financial executors as physical cash, and hoard it. Before armored safes existed, people buried it under their houses in jars. This kept it relatively secure from government detection and confiscation. Combined with modern fractional reserve banking, this hoarding behavior has led to bank runs and failures: The bank only keep a fraction of its depositors’ money on site, so when a panic hits and they all run-in demanding to withdraw all their assets, the bank cannot support that and still stay in business. Usually a bank closure is made until some relief measures can be taken.

What I have previously mentioned about federal e-money are the fundamental reasons for implementing it: The location of all money is known, all transactions are seen and recorded, and there is no physical cash to take out of the financial system to stuff-away in a cache somewhere. Governments have noted that money laundering, illegal drug, arms, and terrorist transactions & transfers can be detected and foiled by government traceable e-money, which is true. But it also leaves no safe havens for the assets of legal-operating citizens anymore either. All money and transactions get taxed, and all money remains in digital form in financial accounts, no matter what rate of interest it accrues there, nor what risk it may be subject to there. And if the time comes, it can be confiscated, like the bail-ins that happened in Cyprus in 2013 when the banks “haircut” the accounts of their depositors. Now that’s customer service !

But government-controlled electronic money has other portents that I haven’t hinted at before, like the end of private markets. This really has already been happening by-degree since 1913 when the first (non-temporary) income tax was imposed. The founders of the USA were against direct taxation because they knew the power that it inexorably gives government over the people – it was a central reason for the American revolution and the founding of the country. Everyone knows how the tax-complex has grown, and what a big consideration government regulation and taxation is now on business operation and formation, and on investing and financing strategies. Many people who claim that capitalism doesn’t function don’t appreciate the extent of the huge ball and chain it has to pull just to operate now that it didn’t used to – and was not supposed to.

But even with all that government intrusion, private transactions have still been private: people can patronize the businesses and organizations they want with their money in private. Their business has remained theirs. That has been incurred-upon lately now that big tech companies store and share all your transactions data, messages, and develop behavioral profiles on you based upon that data. Credit card companies also share more of your data than they used to. But these entities primarily leverage this data to try to get you to buy stuff. That is not so with the government.

The government can outlaw all existing e-currencies and implement its own. Blockchain-based bitcoins carry records of every transaction they facilitated, and that record is stored in their distributed ledgers. So consider a government whose currency has moved to this, and which has access to those ledgers. Not only will every cent you own be taxed – the government can tell whether or not  you are using your money in ways it prefers you wouldn’t. Lois Lerner’s Exempt Organizations branch of the IRS took note of which organizations that applied to the IRS for 501-c-3 tax-exempt status were conservative ones like the Tea Party. The applications for those types of organizations were set aside and not put through the approval process.

With federal e-money, the government conceivably will be able to know (although its not supposed to) which political parties and action committees you support, whether you support the SPLC, the NRA, GLAAD,  relief organizations to countries or groups that it may have its own views on, or anything else. With machine learning analytics overlaid, even private person-to-person gifts or transfers can be flagged if they show up as having a repetitive pattern. Yes, physical cash does allow people to traffic in things like illicit drugs, sex, arms, etc.,  beyond the eyes of watchers. But there are many private uses for money that are very beneficial and should remain opaque. How well will investment markets work if the government, with the biggest cash ‘margin’ account, can see where top investors and institutions move their money ? What if a private alternative energy company starts getting big funding for a technology that could obsolesce much human greenhouse gas production and all the political agendas based upon it ?

That’s enough on the powers that federal e-money can bestow government. These possibilities are not as outlandish now as they may sound (look at history). Did you see that buried in congress’s Coronavirus relief package is a provision that allows the government to take ownership shares (warrants, options, preferred stock, and debt securities) in airline companies that accept the assistance  ? – as compensation for it.