A Pandemic Silver Lining: The Birth of a Whole New Monetary System

By John Banks

We’ll be the first to admit, TradeSmith Daily has not been cheerful lately.

Our preferred style is blunt and straightforward. We aren’t big fans of making things soft. Because of that, we’ll never be mistaken for a baby squirrel drinking a dandelion smoothie in a sunbeam.

With that said, it has indeed gotten grim around here — even for us.

Some of you have asked, in a friendly way, if there are aspects of the current moment to feel excited or optimistic about. To which the answer is — absolutely!

Truth be told, our inner 6-year-old is alive and well.

Think about the mood of a second-grade boy when he walks down the street, then drops to all fours to peer at a sidewalk crack and shout: “Whoa, look at that bug!”

We feel that way all the time these days. Not about bugs in sidewalk cracks, but the wild and weird and unprecedented things happening in markets now.

In terms of something to be optimistic about — besides fascinating developments and super-sized profit opportunities — there are silver linings to every crisis. For a crisis that is global and severe enough to shake the world’s foundations, the silver linings can be game-changing and era-defining.

This pandemic, for example, could accelerate the birth of a whole new monetary system.

Because of the pandemic — and the way in which governments will respond to it — we are moving closer to a potential new monetary system that is post-Bretton Woods, post-Keynesian, and post-centralized.

Imagine a new “digital gold” standard that actually works better than the physical 1.0 version — with greater accessibility to all.

Then picture a growing sense of freedom and control for all individuals, with access to sovereign assets you can manage from your smartphone.

On top of that, picture an ability to travel the world — a fun thing to do again, once we have a vaccine — with the ability to spend your sovereign assets easily and seamlessly, at any point of access, in every country you travel to.

How will the pandemic accelerate this development? It’s tricky to explain, but here is our shot at a simplified version:

  • Trillions upon trillions in new debt —  a necessity of fighting the pandemic — will be “the straw that broke the camel’s back” in terms of rendering the old monetary system broken and non-functional.
  • In order to cope with gargantuan debt loads, central banks will need to inflate away mountains of debt too massive to sustain. They will do this via stealth, but those who pay attention will notice. A loss of faith in the old system will accelerate, boosting the value of alternatives.
  • At the same time, governments will accelerate their adoption of cryptocurrency-style payment rails, and other crypto-based transmission technologies, in order to improve the rapid response function of social safety nets and economic stimulus programs.
  • “Central bank digital currencies” (CBDCs) will then be everywhere, issued by nearly all central banks. CBDCs will usher in a new era, in which digital government money can be distributed in a fine-tuned way. This digital central bank money will also be able to spy on you — in terms of the government knowing exactly what you spend and where.
  • To make this new digital system work — where governments can fine-tune the flow of money — every rich-world industrial country will start building crypto payment rails, enabling the ability for digital payments to flow back and forth as easily as water, or dollars, do today.
  • These crypto payment rails will be largely government funded, but they will also be like the nation’s highways — private citizens and private cryptos will be able to make use of them, in the same manner private cars can drive on public roads.
  • In this manner, non-government cryptocurrencies — potentially with Bitcoin in the lead — will have new infrastructure to interface with, causing use cases and awareness levels to expand dramatically.
  • The demand for these non-government cryptos will be compelling and instantaneous, because they will represent freedom, sovereignty, and sustainable value — whereas the CBDCs will be easily debased (at the stroke of a bureaucrat’s keyboard) and the emissaries of George Orwell’s “1984,” updated for the 21st century. 
  • CBDCs, meanwhile, will not directly compete with Bitcoin and other sovereign cryptos in a “store of value” sense, because CBDCs will be just like the bad, old fiat offerings in a key way — governments will have the ability to print CBDCs, and all forms of “digital” currency that they issue, even faster than the old stuff.

So here is where the pandemic comes along and brings the silver lining.

Building out crypto-friendly payment rails on a coast-to-coast scale, and connecting those rails to hundreds of millions of citizens and businesses, is arguably such an eye-bulgingly massive project that only a national government is truly fit to authorize it, fund it, and push it through.

It’s sort of like America’s interstate highway system, or getting a man on the moon in the 1960s — there are some initiatives so big, you need the government’s heft and reach to get them off the ground.

And yet, under normal circumstances, the government would be too slow-footed and distracted to take on such a high-tech project. Government bureaucrats are built for the status quo, not radical disruptive change.

And yet, the breaking of the old monetary system (via trillions in unsustainable pandemic-related debt) and the need to completely overhaul the rapid response capabilities of safety-net payments and economic stimulus response — realities of the pandemic we are facing now — are forcing change upon the bureaucrats in a way that can’t be ignored. You can thank the pandemic for that. 

The wheels are already turning. The U.S. Congress is already interested in crypto — a “digital dollar” CBDC. Legislators are taking it seriously.

The “digital dollar” is a real initiative with real momentum behind it. There was even a chunk of digital dollar legislation included in the $2.2 trillion stimulus package (before being taken out in later versions).

The digital-dollar people probably want to beat the digital-yuan people over in China. And Europe is in on the game, too. This is the thing now. Central bank basements are literally becoming crypto labs.

The pandemic did this, or at minimum kicked the whole thing into hyperdrive.

The government needs digital money because it needs greater control of the safety net, and greater ability to quickly and efficiently send funds to small-scale entities, in contrast to the horror-show rat’s nest of a broken system it has now.

The pandemic has driven home the urgency of this initiative in a way that nothing else could have.

But then, in the long run, we don’t care about CBDCs, because, at the end of the day, they are still printable fiat control mechanisms administered by Big Brother.

And yet, in their need to implement CBDCs — and the need to inflate away old debts — existing governments will accidentally create, simultaneously, the infrastructure and the consumer-demand conditions for a new, sovereign, and decentralized monetary system that is controlled by no one — and thus owned by everyone.

Governments will do this not because they want or intend to, but because their hand will be forced.

As part of an aftermath response to the pandemic, they will open the door to Bitcoin (via the national build-out of crypto payment rails) as a matter of urgent need.

And then Bitcoin will step into the gap, along with other sovereign crypto assets of similar nature — decentralized, uncontrolled, not subject to a printing press — and ride the payment rails to ever greater use and appreciation. And “free” cryptos (as opposed to government-controlled ones) will then ultimately win the monetary battle, by simple dint of consumer choice.

It’s like a giant chess board, with the governments of the world on one side and Bitcoin on the other — and the realities of the pandemic are accelerating the endgame, as Bitcoin moves closer to checkmate.

So that’s something to be optimistic about — and something we’ll talk much more about in the coming weeks (and months and years).

The global pandemic is a 100-year crisis — on the same transformational scale as wars, revolutions, and the collapse of empires — and a crisis that big has a tendency to sweep old orders away. 

It’s gonna be really cool!