The Peter Zeihan Podcast Series - The Problem with Central Bank Digital Currencies || Peter Zeihan

Episode Date: August 31, 2023

With all the buzz around central banks starting digital currencies and one of these entities controlling all transactions, I think it's about time I burst everyone's bubble...Full Newsletter: https://mailchi.mp/zeihan/the-problem-with-central-bank-digital-currencies

Hello, everybody from the Cliff Band above Horseshoe Mountain. Have Sherman shared in the rest of the West and Miscuita reverse to the north behind me? Split the video and a half so you can see the view to the south too. This is one of my favorite places of Colorado all of a sudden, first time up here. Anyway, above 12,000 feet pretty much all day. Today, after so many of you have asked, I'm talking a little bit about Central Bank digital currencies. It's not nearly as exciting or revolutionary as a topic as you think. A lot of people are thinking that this is a way that a central bank can control all transactions in the Western model.

That is absolutely now how it goes. And you just need to understand how financial transactions work today. Right now, if your money is in a bank account, you can use your debit card to, like, throw it out a retailer pretty easily, or to transfer it to another financial institution or another account. And as you do that, you're introducing steps in intermediaries. And at each of those intermediaries, there is a party who charges. a fee. And one of the reasons that FinTech, that's financial technology stuff, has become so interesting in the last 10 years, is new technologies are allowing for faster transfers of information,

and so therefore faster transfers of funds between multiple parties. And in that sort of environment, there is room for a new technology, a new player, to basically cut out the middleman or replace them with something that's smoother or faster. Based on how you're doing this with a wire transfer with the Calum Balance transfer it can cost you anywhere from a few dozen dollars to a certain percentage think credit cards in order

to get it done and so there's rooms to slim it down as the cost of information transfer goes down and the speed of information transfer goes up now we're looking south towards Weston Pass and some guy decided that 13,900 feet was the place to

set up in his cabin and mine shown Anyway, a lot of this fintech is basically trying to slim down the process and therefore take that, say, if it's a 3% transfer fee, they only charge 1% and they drive the other people out. This is even happening in things like real estate. Now, a central bank digital currency, as classically envisioned, exists alongside your paper currency, or your coin currency, and is managed much the same way. It's not independent.

it doesn't trade independent, it's functionally pegged, it is the same thing, and one is exchangeable for the other. And because of that, there's no additional government control from a government going digital. In fact, if you look at Europe, paper checks were basically wiped out of existence over 10 years ago, and the United States is only now finally getting to that point. So there's room here to take some technology

that's not even all that new and apply it forward. But what we're going to see in the next five years is going to be truly dramatic in comparison, and it's going to largely wipe out. the fintech space. What the U.S. Federal Reserve right now is doing is something called Fet Now, which allows instantaneous clearing of any funds transfer using the Fed itself as an intermediary for free. And in that sort of environment, it doesn't really matter what the competition is, Zell, Bitcoin, or anything else. You can't compete with free and instantaneous

with the Fed. So we're probably going to see the overall finance tech space go from being really exciting as people are applying all these two technologies to all of a sudden the Fed just going, bink, you just deal with me directly and you go on your way. They're building the infrastructure right now, and as soon as that is done, all clearing houses between all corporations, unless they've got something to hide, are just going to use the Fed because it's cheaper and faster and safer. And when that happens, a lot of this discussion over other currencies or alternate currencies is simply going to go away because there aren't a lot of base cases or use cases for them anyway. But if the Fed makes everything free, even some of those that are kind of a bit of a

reach, but you can kind of see it, even those can go away. So it's not nearly as sexy of a topic from a conspiracy or a government control point of view, as you might say, the Federal Reserve only has a staff of a few hundred. If they're going to manage transactions, they would need at least 10, probably 100 times as many. So that's not going to happen here. Now, that's, cool, we got a fog make coming up. That is not the same thing that is going on in China. China is marrying their digital currency to their social currency store. And it has been a hit and miss experimented so far, but it's definitely Orwellian. And they do have the intention and they do have the legal structure, and they do have the staff to monitor individual transaction

and allow and deny them based on whether or not you are sufficiently loyal. For that to go down in the United States, you would have to have multiple acts of Congress, get adopted, get through the court system, and then massively build out the Federal Reserve system to have some sort of oversight and enforcement mechanism. There is no hint of conversation within the Federal Reserve of Congress of anyone wanting to do that.

If anything, Congress might take some approach. preemptive steps to make sure that that doesn't happen. But if we do go down that road, there will be plenty and plenty and plenty and plenty of road signs between here and there. Back to the Chinese for a second. If this system works in China, I mean, the place is already an Orwellian healthcape. But basically, this would take the entire financial space and put it under the government's thumb.

And in that sort of an environment, if you think small businesses can exist at all, you don't know Orwell very well. So while this might give Chairman G what he wants control, it'll come at the cost of what's left of the most dynamic. So will they do it? Don't know. They're certainly going to try, though. All right, that's it.

Bye.