One of the pressing hot button issues of our time is the development and implementation of central bank digital currencies (CBDCs). Just a few years ago, the possibility of CBDCs even being developed seemed slim, as many central banks dismissed cryptocurrencies and digital currencies as passing fads. But today CBDCs are increasingly being studied by central banks, as China’s push to adopt its own CBDC has spurred interest from Western countries. But as useful as a CBDC could be, it could also have numerous drawbacks. For Americans who are used to financial privacy and freedom, the existing push to eliminate cash and push transactions to electronic methods is already frustrating. But the push for an American CBDC, an e-dollar, seems like it’s just a step too far. How would you protect your financial privacy if a CBDC were to gain a foothold in this country? And would traditional means of safeguarding wealth, like owning precious metals, even be possible in a post-CBDC world? What Is a CBDC? A central bank digital currency is a cryptocurrency-like digital currency issued by a central bank that is intended to circulate as a medium of exchange and either augment or supplant existing central bank-issued or government-issued currency. The US Federal Reserve System already operates mostly digitally anyway, as the trillions of dollars it creates to purchase assets aren’t actually paper dollar bills printed on a printing press. They’re 1s and 0s created electronically and transferred from a Federal Reserve account to a financial institution’s account. While these digitally created dollars may eventually find their way into the overall financial system, and may eventually end up in an end user’s bank account, they aren’t really intended to replace bank deposits or paper money. A CBDC, on the other hand, could conceivably replace paper money, bank deposits, checks, or even free market cryptocurrencies like Bitcoin. But as a CBDC is still just an item of study, the devil is in the details. How Would a CBDC Work? A CBDC would be issued by a central bank, but aside from that the method of operation could take a number of different forms. Right now China is kind of setting the road map for CBDC operation, so let’s look at how their e-CNY works. Essentially the e-CNY operates as a direct liability of the central bank. The central bank issues the currency and accepts it. Anyone with a mobile phone number can open a digital wallet that can then hold the CBDC. One fear of CBDCs is that they might force banks out of business. But in China, the central bank works with multiple large banks that actually issue and service the digital wallets. Central banks don’t have the expertise or manpower to work directly with consumers, nor do they want to put banks out of business. While the e-CNY is supposed to retain some sort of anonymity, so that a user of the CBDC won’t necessarily be known to a seller who accepts the CBDC, there is no anonymity when it comes to the government. So every transaction can be seen and tracked by the government, including knowing who used how much CBDC, how much was paid, and what was purchased. Do Other Countries Use CBDCs? Aside from China, a handful of other countries also use CBDCs. Nigeria is one of them, with the government there having taken the draconian step of limiting the amount of money that people could withdraw from ATMs in order to try to force acceptance of the CBDC. The Eastern Caribbean Central Bank has also issued its D-Cash CBDC, although it has had its hiccups. But aside from these limited examples, most other central banks are still in the discussion phase, trying to determine what the potential use cases are for a CBDC and what the benefits might be. CBDCs and Privacy Concerns For consumers, privacy concerns are one of the primary potential drawbacks to any CBDC. The fact that the government could track every single transaction is frightening to anyone who values individual liberty. But governments see that aspect of CBDCs as a positive. Former Mexican central bank chief Agustin Carstens summed it up in a speech in 2021, in which he explained how CBDCs could allow central banks absolute control over money. Today, if you use a $20 bill to buy food at the store, no one can trace that transaction to you. If you use a credit card, or Apple Pay, or some other form of electronic payment, there may be an electronic record that is tied to you that the seller or payment processors keep, largely for marketing purposes. But if the government wanted to find out what you bought, it would have to convince a judge to issue a warrant, and would have to have some suspicion of wrongdoing. With a CBDC, however, that transaction would be recorded by the government. Naturally governments try to downplay these privacy concerns, by claiming that CBDCs can crack down on tax evasion, money laundering, and other illegal activity. And if you haven’t done anything wrong, what do you have to hide? But while people willingly give up a little bit of anonymity when using payment methods like Paypal, Zelle, or credit cards online, we still expect records of those transactions to be free from government snooping. And we choose to use those payment methods, we’re not forced into them. The fear with CBDCs is that they’ll be used to replace cash, and that people will be coerced into using the CBDC so that the government can track more and more transactions, collect more taxes, or even crack down on purchases that it doesn’t like. It’s the potential for misuses of CBDCs by governments that has so many people up in arms against CBDCs. CBDCs and Gold If cash is replaced by CBDCs, how can you maintain anonymity when making purchases? That’s an important question, especially as CBDCs may very well also replace Bitcoin and other cryptocurrencies as methods of payment. Could it be that

Once net sellers of gold, central banks in recent years have become net buyers of gold. In fact, by some estimates central banks around the world now hold more gold than ever. But why are they buying so much gold? And have the purchases they have made in recent years been enough to protect them against the problems and dangers they foresee? Conducting Monetary Policy As powerful as central banks can be within their own economies, not all of them have significant amounts of power. As Americans, our perceptions of central banks and central banking are shaped by the behavior of the Federal Reserve, arguably the world’s most important and most powerful central bank. The Fed has the unique status of being the issuer of the world’s reserve currency, the US dollar. That gives the Fed a tremendous amount of power not just domestically but internationally as well. Most other central banks around the world are forced to react to the moves the Fed makes. If the Fed is an aircraft carrier coming into port, other central banks are like fishing boats trying not to get swamped as they navigate through the Fed’s wake. As the issuer of the world’s reserve currency, the Fed is in a unique position. The entire world demands its currency and uses it for international trade or for foreign exchange reserves. But that’s a double edged sword as well for those central banks. The more the Fed inflates the money supply and devalues the dollar, the less valuable the dollar holdings of foreign central banks become. Those central banks also have to, in many cases, mirror the Fed’s actions in order to keep their own national currencies from appreciating too strongly. And that requires them often to react to monetary policy rather than acting first. Central Banks and Gold One of the ways that these other central banks can try to protect themselves is by buying and holding gold. After all, the long-term trend in the gold price is for the gold price to rise, just like the long-term trend for the value of the US dollar is to fall. Since the Fed’s creation in 1913, the US dollar has lost 97% of its purchasing power, while the price of an ounce of gold has risen over 9,000%. Since 1971, when President Nixon closed the gold window and severed the last official link between the dollar and gold, the dollar has lost 87% of its purchasing power, while the price of gold has risen over 5,000%. If you’re a central bank looking at the long-term strength and health of your balance sheet, not to mention looking at the current economic climate, which would you choose to buy more of: dollars or gold? While holding dollars is a necessity to engage in foreign exchange and currency stabilization, when it comes to long-term maintenance of value, it’s hard to beat gold. And that is probably one of many reasons that central banks around the world are continuing to buy gold. Another reason is that central banks are at the forefront of combating recessions. And the recession that seems to be on the way could end up being a doozy. Central banks want to ensure that they are in a position to protect themselves and their currencies in the event of recession. Unlike the Fed, which can create dollars out of nothing and find a ready market for them, most central banks don’t have the luxury of printing their way out of trouble. They need ready assets that are valuable, liquid, stable in price and, most importantly, in demand by others. Gold fits that bill. The Advantages of Gold Gold has been treasured as a safe haven asset and store of wealth for centuries. Its ability to maintain its value over time continues to make it a safe haven choice not just for central banks but for individuals too. While central banks may be buying gold at a record pace, gold demand from individuals is growing as well. Just like central banks, individuals are looking to protect their financial well-being with gold. Many Americans remember the 2008 financial crisis, and how badly their assets lost value. Many undoubtedly also remember how badly their investment portfolios fared. Markets lost more than 50% of their value, eroding the value of savings that had taken years or decades to build up. The years after the market crash weren’t much better, with markets struggling to regain their footing. While all that was going on, however, gold was going on a tear. During the same period that markets lost more than 50% of their value (October 2007 to March 2009), the gold price rose 25%. And from its 2008 lows, the gold price nearly tripled in price by 2011, setting an all-time high. Gold set new all-time highs in 2020, and flirted with them again this year. Right now the gold price is pushing back to the $2,000 mark as economic headwinds press against the economy. With recession seemingly becoming ever more likely each month, could the gold price end up pushing significantly higher as gold’s safe haven status spurs further demand? We’re in a time of great uncertainty and fear, with bank failures, inflation, and war stoking unease about the future. That’s why the certainty and stability that gold offers is so enticing to so many people today. Today there are more options than ever to buy gold, from opening a gold IRA to protect your tax-advantaged retirement savings, to making direct cash purchases of gold coins or bars to store at home. No matter which way you choose to buy gold, Goldco has options available for you. With over $2 billion in precious metals placements and thousands of satisfied customers, Goldco has spent years becoming one of the biggest and most trusted names in the precious metals industry. Our specialists can answer your questions about how gold IRAs work, how IRA rollovers work, the various types of gold coins and bars you can buy, and

The law of supply and demand is one of the bedrocks of economics. And for most goods the higher the price of the good, the less quantity of that good is demanded. We’re seeing that through much of the economy today, as higher prices for food, gas, clothing, etc. are dampening consumer demand. But sometimes higher prices seem to actually stimulate demand for certain goods. Goods with a certain cachet or luxury appeal may actually see an increase in demand when prices rise. And gold today seems to be one of them. When gold was trading around $1,200 an ounce a few years ago, gold demand was relatively subdued. But today with the gold price more than twice as high and at all-time highs, gold demand is much stronger. And while that higher gold price has certainly dampened demand in certain sectors of the gold industry, it hasn’t damped demand in many others. Central Banks Remain Strong Gold Buyers Central banks in July doubled their overall gold purchases versus the previous month, with the 37 tonnes purchased making for the largest overall month of purchases since January, and the second consecutive month of increasing purchases. While high gold prices had seemed to dampen central bank gold demand earlier in the year, demand is once again on the upswing as central banks continue to buy gold. Of course, not all central banks are gold buyers, and some have been sellers, perhaps hoping to take advantage of the record high gold prices. But overall, central bank gold buying has far outweighed central bank gold selling. The irony is that when gold was more reasonably priced, central banks didn’t want it. That was particularly true 20-30 years ago, when central banks colluded to sell off their gold holdings. The UK was a particular egregious example of that, with Chancellor of the Exchequer Gordon Brown selling off half of the UK’s gold reserves. That gold, sold at an average price of about $275 per ounce, would now be worth more than nine times as much. Central banks have learned their lesson since that time, and in recent years central banks have been record purchasers of gold. That has helped to buoy gold demand and gold prices, but it isn’t the only source of gold demand. Is Russian Gold Demand Helping Support Gold Prices? One aspect of gold markets that hasn’t received a lot of attention is the purchasing and selling of gold by Russian firms. A recent Reuters article highlighted the difficulties Russian firms are having in dealing with China. Secondary sanctions threatened by the US government against banks and firms dealing with Russia have led Chinese banks to take a much harsher stance against cross-border transactions with Russia. As a result, payments between Russia and China have almost ground to a halt. And while workarounds have been found, it has significantly lengthened the time of the payment process and has led trade to nearly come to a standstill. One of the workarounds was for Russian firms to buy gold, ship it to Hong Kong and sell it there, and then deposit the cash into a bank account in Hong Kong. It’s a bit of a circuitous means of making payment, but if it works, it works. That highlights the continuing importance of gold in international trade, and one of its potential use cases that could be helping in some small way to keep gold demand high. Investment Demand for Gold Remains Strong Gold demand from investors remains strong as well. Even though Q2 bar and coin demand saw small decreases from a year ago, a significant increase in OTC gold demand helped push overall gold demand higher. This is a positive sign that higher gold prices haven’t dampened gold demand. While demand from the jewelry industry has of course fallen, as gold is just an input in jewelry making, that has been more than made up for by investment demand and central bank gold demand. When gold starts to rise like this, the attention on the gold price tends to make gold a little more popular, and people begin to start thinking a little harder about making gold a part of their investment portfolio. And if gold really takes off in the coming years like it did post-2008, that could spur even more gold demand. Is Gold Part of Your Portfolio? Buying gold to add to your financial portfolio can be done relatively easily, no matter which way you decide to buy gold. Direct cash purchases of gold coins and gold bars remain a popular option, but there’s also the option of a gold IRA. Gold IRAs have been rising in popularity recently, as they allow you to protect your existing retirement savings with physical gold. You can fund a gold IRA with a tax-free rollover from your 401(k), 403(b), TSP, IRA, or similar account into your gold IRA. That allows you to purchase gold coins or gold bars to be held by your gold IRA, which then enjoys all the same tax advantages of any other IRA account. Your gains accrue tax-free, you only pay taxes when you take a distribution, and you can take a distribution either in cash or in gold. If you’re looking for a way to protect your hard-earned wealth in the face of potential recession, gold can be one way of doing that. Just like central banks have added to their gold holdings in order to weather the coming storm, you too can add gold to your holdings. Goldco has helped thousands of customers secure their financial future by owning gold, and our more than 6,000 5-star reviews are a testament to our devotion to quality precious metals products and outstanding customer service. If you want to learn more about how owning gold can help benefit you, call Goldco today.