As global elites met in Davos this week to discuss their latest plans for a Great Reset, ordinary investors are hoping for a great rebound in their portfolios.
The stock market did finally bounce after suffering several consecutive weeks of losses. Whether it’s a just a short-lived relief rally or the start of something bigger remains to be seen.
The U.S. Dollar Index may also be gearing up for a run, but to the downside. After moving higher against foreign currencies for most the year, the dollar is now declining for a second consecutive week.
Dollar weakness helped support a modest rise in gold and silver prices.
Precious metals, of course, play the unique role of hard money in an investor’s portfolio. They offer the kind of security that no paper or digital assets can ever provide.
Whereas fiat currencies steadily, and sometimes rapidly, depreciate, gold and silver retain value over time. And whereas cryptocurrencies are prone to being pumped and dumped while carrying all the risks inherent in digital transactions, physical bullion is an inherently off the grid asset.
But central bankers and politicians around the world like the idea of marrying fiat currency with the digital blockchain. Many of them gathered this week in Davos for the World Economic Forum’s annual meeting.
Among the items on their agenda was central bank digital currencies. The managing director of the International Monetary Fund along with European central bankers talked about the central bank coins as the solution to instability in Bitcoin and other cryptocurrencies.
Several countries are now planning to issue official digital currencies. They will be circulated into the economy in partnership with large commercial banks. And they may eventually be merged into a single global coin network controlled by the IMF.
Federal Reserve chairman Jerome Powell has acknowledged the Fed is looking into issuing a digital currency. He has been vague about how far along in development the Fedcoin project is and how exactly it would work.
But Federal Reserve Vice Chair Lael Brainard is talking up the potential benefits of a central bank digital currency. She delivered comments to House Financial Services Committee this week.
Brainard seized on the recent carnage that afflicted so-called stablecoins to call for new regulations. She specifically touted the ability of the Fed to provide “safe central bank liability in the digital financial ecosystem.”
Brainard was appointed to her position earlier this year by President Joe Biden. It’s likely her views fully reflect those of the Biden administration, which is moving aggressively on the tax front to raise revenues.
The Treasury Department has singled out cryptocurrency markets in particular as being major sources of tax evasion.
But if Fedcoin ever becomes fully integrated into banking, credit, and payments systems, then the government will be able to generate digital records of each and every transaction in the economy.
A dream come true for the IRS. A nightmare for anyone who values financial privacy.
Unfortunately, privacy in the digital world is cumbersome to pursue and impossible to guarantee. Exchanges can be hacked. Encryption keys can be lost or stolen. And blockchains aren’t as anonymous as they may seem.
By contrast, transactions done in paper cash can still be done in untraceable and undetectable ways. And despite the fearmongering by Biden administration officials about cryptocurrencies facilitating fraud and crime, the vast majority of illicit transactions are conducted in U.S. dollars.
They know that, which is why they are also trying to make it more difficult to engage in large cash transactions. And ultimately, officials would like to phase out physical cash altogether so that every dollar can be tracked digitally.
Systems for tracking every individual’s social credit and carbon footprint might become part of the currency reset. A presenter at the World Economic Forum’s meeting this week actually suggested that.
Those who are eager to integrate surveillance technologies into the monetary system have no use for gold and silver. Metals are barbarous relics to them.
But to individuals who value their privacy as well as retaining their purchasing power, physical precious metals will never become obsolete as money.