Government Crypto: A Hammer Against the People

In 1785 philosopher Jeremy Bentham invented the Panopticon, a type of prison where a single jailer can see every prisoner. The jailer sits in a room in the center, and each cell radiates out like bicycle spokes. The idea is no prisoner knows if they’re being watched. It’s the next best thing to putting a jailer to mind every single prisoner.

Governments now want to create a financial panopticon for all Americans, made of government crypto. And they want it for the same reasons: to surveil, and to control, the people they allegedly serve. As a financial hammer against We the Nails.

For decades now governments have been trying to ban cash. This has been been driven by hostility to grey markets, to tax avoidance, or simply donations to people the regime dislikes. A few years ago I wrote an article at Mises about one such push from Harvard’s Ken Rogoff, who is a predictable vending machine for government surveillance and control. Government crypto didn’t yet exist, but now thanks to China they do.

Governments’ Long March Against Money

Government’s Long March against money is nothing new: The historical pattern is that the people choose a money, such as gold or silver, in order to store the proceeds of their hard work and so they can easily trade with strangers — after all, you can trade with friends without money, but only with money do strangers become friends. These are the “killer apps” of money.

Once a money is established, governments historically get straight to work attacking that money. Both by stealing it via counterfeiting — coin-clipping, debasement, or adulteration traditionally, now simply printing new paper or adding another zero on a spreadsheet.

Beyond stealing it, they also attack money by taking over the centralized chokepoints that store and move it — banks, brokers, insurers, gold or silver merchants and warehouses. This allows them to outright seize all money they can grab, as FDR did in the 1930’s, or simply to control and channel it, as happens today.

Nixon’s Unfinished Revolution

In the US this process of government control of the money itself was nearly achieved in 1971 when Richard Nixon broke the last remnant of gold backing the dollar. Giving us the modern age where governments counterfeit every last dollar they can slip by the people — at least $20 trillion since 1971, making for a 95% debasement of the dollar.

And yet, for the totalitarians, Nixon only achieved half the revolution. Because people still, annoyingly, use paper cash in ways governments don’t like. A large fraction of cash transactions, for example, are illicit — scoring dope, buying raw milk or Ivermectin, donating to unapproved causes, or simply shaving your taxes. This “War on Cash” has been going on for decades, with governments threatening and cajoling people away from paper money towards payment methods they can see and control. After all, if you’ve got nothing to hide you’ve got nothing to fear, right?

Enter Government Crypto

And that’s where government crypto comes in — Central Bank Digital Coins (CBDC’s). The idea is to pervert Bitcoin’s blockchain architecture to spawn a centralized money where every last transaction is surveilled, and potentially controlled, directly by governments. These government coins may go through existing banks, or they may be run directly from the Fed or Treasury taking over your bank account. If you’ve ever tried to resolve a customer service problem with the American government, the prospect of banking with the DMV should fill you with dread, but set that aside for now.

Promoters sell CBDC’s as innocent improvements to today’s antiquated fiat system. It’s worth mentioning the system is antiquated specifically because governments broke it by preventing innovation and competition. For example, today it takes days to settle a stock trade — this is what crashed RobinHood in the Gamestop debacle. Meanwhile, it can take five days for a bank check to clear — quite uncomfortable if you’ve ever, say, received a salary or paid a bill.

Note these are both transactions that take fractions of a second between organizations that know and trust each other — Wells Fargo will freeze money from Citibank for five days.

Why so broken? Sometimes governments broke finance because bank lobbyists told them to. And sometimes they broke it because they’re stupid — well, they’re insufficiently motivated to make good decisions. After all, like most regulators, governments have little understanding of the industries they supposedly shepherd and husband — indeed, they little understanding of the economy and society they supposedly shepherd and husband.

And so, bureaucrats coo, nevermind the totalitarian panopticon, surely you’d like your bank deposits in minutes and not days. And normal voters, who know very little about T+3 settlement, nevermind crypto, think how wonderful it would be to spend their own money the same week they earn it.

Now, we should be immediately suspicious, simply because private versions of this wonderland already exist in the form of private stablecoins. These are crypto that have a stable value of, say, $1 per coin. They are, and should remain, subject to standard fraud rules, but beyond that they remain unregulated.

Now, to be fair, stablecoins aren’t 100% fixed — about once a year major stablecoin Tether manages to deviate a few pennies from $1. Still, also to be fair, the US dollar itself is even less fixed, eroding by between 2 and 13 cents per year since 1971. Not only is that not stable, it’s not even stable at the rate it erodes — plus or minus 10% is a big deal for the alleged North Star of the global economy.

In case you’re curious, the only way to get a truly stable currency is a return to money with a more stable supply. Meaning, in practice, either gold or Bitcoin. Gold’s fatal flaw is that because it is physical it must be centralized. So I think the most likely winner is Bitcoin. Still, the path from here to full Bitcoinization is long and volatile, while stablecoins already offer all the benefits of CBDC’s without the dystopian costs.

CBDC’s as Totalitarian Stablecoins

So if existing stablecoins already give us wonderland, what’s in a CBDC? For the people, nothing. But for governments, the benefits are immense.

China recently touted some of these for their “cyber yuan” CBDC. The Wall Street Journal walked through them: the ability to surveil every single person’s spending “in real time,” the ability to seize or fine people at-will, to socially engineer with hand-outs or take-aways, and the monetarists’ nightmare of creating money that expires if you don’t use it fast enough.

This last point is a big deal because it radically expands the Federal Reserve’s ability to destabilize the economy. Today, central banks try to inflate recessions away, sparking what Tom Woods calls a “tissue fire” of unsustainable growth. But bankers can only go so low before people pull their money out of banks. After all, if the Fed imposes, say, a negative 10% interest rate per month, then people don’t just sit and take it, they pull their money out of the bank and stuff it in a coffee can, or buried in the yard.

It’s a completely different picture under a CBDC. Now, you have no option — the 10% comes directly out of your coin. You had $10,000 last month, now you’ve got $9,000. Pull it out, hide it, bury it in 2 feet of concrete guarded by sharks with freaking laser beams, and it still melts away. There is no limit to the tissue fires they can force.

Not only is this giving a preschooler a machete, it becomes entirely feasible to, for example, take 10% from every dollar not invested in carbon-neutral or social justice schemes. In such a world, Americans become pawns on a chessboard, with governments adding or subtracting from your wealth according to whatever social justice or redistributionist fad has their attention this week.

Conclusion

Rather than keeping up with every authoritarian tool China imposes on its helpless citizens, policymakers across the West should be fixing our corrupt and antiquated financial systems by simply allowing people to use private alternatives, whether Bitcoin, stablecoins, or even gold-backed money.

Policymakers’ job is not to kick, punch, and cajole the people into dangerous monetary and surveillance gimmicks, rather to listen to what the people actually want. Which is a money so safe and so easy that it fades into the background as unnoticed, as helpful, as welcome as the air we breathe. We used to have this, government broke it, Bitcoin gives it back, but of course they want to wreck it again.

If you enjoyed this article, read more on Why Bitcoin Beats Gold, Why Governments Can’t Ban Bitcoin, and What Happens if Bitcoin Wins.

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See you next week!

Originally published at https://cryptoeconomy.substack.com on October 2, 2021.