Worried About Central Bank Digital Currency? 3 Ways to Protect Yourself

Under the Trump administration, those plans were put in a deep freeze. But a number of other countries already have, or are exploring them, and it may come this way again.

To advocates, it offers the following benefits:

• Faster payments,

• Lower transaction costs,

• A way for “unbanked” people to get access to the financial system,

• A more efficient way to deliver government benefit payments,

• And better tools for fighting money laundering.

The basic pitch is that a centralized digital currency would make the financial system cheaper, faster, and safer.

None of that would be bad. I would certainly welcome it over the slow and expensive system we have now.

But…

…it would add an unprecedented level of surveillance over how you use your money. It would give the powers that be a direct window into every transaction you make. It could even dictate how you use money that’s supposed to be yours…

I’m talking about things like:

• Programmable cash: A CBDC could be designed so that funds expire if you don’t spend them. Useful if the central bank is trying to encourage spending over saving.

• Enforced negative interest rates: Deposits could lose value if you don’t spend them fast enough.

• Blocked payments: Outright rejection of your purchases if they trigger some sort of red flag. One can see how this could be abused for political reasons.

For me personally, I see pros and cons. It’s a tool – and it could be a useful tool. But it has to be voluntary to be fair. No one should be forced to use a currency any more than anyone should be forced to buy government bonds or any other asset.

It’s understandable that some people want to make contingency plans just in case a CBDC was imposed on users of the US financial system.

That was the underlying concern when a planning client asked us this a few weeks ago:

What are people doing to avoid having their savings accounts turn to digital money?

When it comes to a CBDC, our suggestions are much the same as those for anyone looking to diversify themselves out of the dollar.

#1: Realize that your savings account is already, in fact, a form of digital money.

When you deposit money in a bank, you’re essentially getting back an IOU – there’s no direct asset backing that promise (including the cash you put in). Although there are distinct legal differences, from a practical perspective, in that sense, a Fed-backed CBDC and a bank IOU is just a question of semantics.

#2: Look to hard assets.

Real estate, gold coins, physical currency notes, collectibles, and other physical goods that retain value over time – these represent a real store of value. They do come with drawbacks, most notably liquidity, insurance, and storage issues.

But it’s a trend we’ve seen in our practice – buying physical assets to avoid exposure to the financial system and everything tied to it.

#3: Consider options outside the US.

I’d be remiss if I didn’t mention our area of expertise – moving assets internationally. Different jurisdictions work by different rules and can offer more of a safe harbor than what’s available in the US.

Case in point: Some years ago, I was in Zurich with an American colleague of mine. He had some old Swiss Franc bills lying around that were no longer valid for use in Switzerland (for anti-counterfeiting reasons, the Swiss National Bank issues a new series of notes every few decades).

In such cases, you can go to the bank and just ask for new ones. That’s exactly what my colleague did – walked up to the window, handed over his bills, and the teller replaced them one for one.

No ID. No questions.

I don’t know about you, but a financial system where you can walk into the central bank, exchange expired money for new bills no questions asked, and walk out without showing ID or leaving a transaction record… that tells me something about their attitude toward financial privacy.

That tells me that such a place is unlikely to introduce a US-style CBDC any time soon.

That story aside, opening an account with a Swiss private bank isn’t as straightforward as it once was. Thanks to pressure from Uncle Sam over the past few decades, Swiss accounts are no longer truly anonymous. But — and I’m clearly biased here — those looking for a safe place to store some assets overseas could do worse than this Alpine country. If you’re wondering whether a Swiss account makes sense for you, feel free to get in touch.