Welcome to our Friday mailbag edition!

Every week, we receive some great questions from your fellow readers. And every Friday, I answer as many as I can.

This week, the conversation about a digital dollar continues. Readers want to know what it will mean for Americans’ money, privacy, and their freedom…

If I put my money into stocks and other securities, when I go to spend these, do they have to be converted to digital dollars and then fall under outside controls? If so, how do we avoid that problem?

– Glen P.

Hi Glen. Thanks for your questions! They’re especially relevant now that the digital dollar is upon us.

Every day, our government gets closer to adopting a central bank digital currency (CBDC) and transforming our monetary system.

In that sense, they’re just riding the wave of a global trend:

  • 98 central banks are in the process of planning the digitalization of their currency.

  • More than 80% of global banks are exploring digital currency.

  • And overall, 130 countries are already exploring digital currencies.

That said, there’s still a lot of uncertainty surrounding CBDCs.

It’s not “official” in the United States. And other countries that are implementing CBDCs have different approaches. That makes it hard to predict the exact impact on your investments.

So we can only speculate on what might happen next.

But before diving into that, let’s jog our readers’ memories about what those “outside controls” you mentioned potentially entail.

First, the whole idea behind CBDCs is that they will help strengthen central banks’ power over the financial system. That’s because CBDCs will be highly centralized.

Yes, they will use a form of blockchain tech. This is the same as most decentralized digital assets, like Bitcoin.

But CBDCs have a different raison d’être… power and control.

And this brings us to what I perceive as your main concern – the prospect that, over time, CBDCs could facilitate central banks and other governmental entities in monitoring every transaction.

Indeed, the implications are limitless. They range from taxation to interest rates, as you pointed out. But, again, we just don’t know for sure what those “outside controls” might look like once CBDCs are introduced.

Second, I would speculate that brokerage accounts will replace the cash you have in those accounts with the equivalent value of CBDCs.

Before this happens, they will likely test this out so you don’t lose the value of the cash in your account when the conversion happens. I also imagine they will let you know in advance that this is happening and when it will happen.

And, yes, this also means that any funds you receive from selling assets in your brokerage account might be converted into CBDCs.

Will this conversion be automatic? Or will you have a say in whether the cash from stock or ETF sales in your account is converted to CBDCs? That remains uncertain.

If I had to make an educated guess, brokerages will likely implement some transitional measures for this purpose.

Now, there is one potential silver lining: A digital dollar should hold the same value as its physical counterpart.

This means that if you opt to have your cash converted to digital currency, its value at that moment should remain unchanged.

Remember, we’re still in the early stages of this global shift. That means there are countless potential paths this could take. But one thing I know for sure is that a digital dollar is coming.

That’s why I recorded an investigative report to help you end up on the right side of this shift.

In it, I go into more detail on what a digital dollar could mean for our financial system, for Americans, and for our money. You can watch it for free right here.

CBDCs will be the end of freedom, privacy, and human rights. If the U.S. does do it (it’s gotten closer with FedNow), how will this impact dollar denominated accounts or cash dollars outside the U.S.?

And in particular, countries that are dollarized – whether official (like Panama and Ecuador) or informal (like the many countries where currency is toast or high inflation)?

– Gati G.

Hi Gati, thank you so much for your insightful questions and sharing your concerns about CBDCs. These concerns are ones that I share as well.

The reality is that the faster we move towards a programmable or digital currency, or CBDC, the easier it will be for the government, or any government, to monitor more of our financial choices and compile data on how we spend money in general.

That would take away our freedom to decide how to compartmentalize the data that we choose to share with data that we have no choice in sharing.

But we are on that path toward a digital dollar. The same way that we went from gold to paper currency, bank tellers to ATMs, in-person banking to mobile banking apps.

We are nearing a moment where existing technology and the government’s desire and ability to monitor every aspect of our financial lives is converging.

Now, this could take years to fully play out, as I’ve written. And it could happen more quickly in some countries than in others. But it IS happening.

The IMF has talked about it since before Covid. And right now, more than 130 countries are in some stage of the process of exploring the use of CBDCs.

Collectively, they represent 98% of the global economy – basically the whole world.

Not only that, all of the G20 countries (net of Argentina) are in advanced stages of exploration, according to the U.S.-based think-tank, the Atlantic Council.

China is pilot testing a CBDC, and Brazil and India have announced they could adopt one next year.

Here in the U.S., the White House issued a framework to research the effects of a CBDC. That framework, released on September 2022, is the White House’s first comprehensive framework for what they call “responsible development of digital assets.”

In it, the Biden Administration “encourages the Federal Reserve to continue its ongoing CBDC research, experimentation, and evaluation.” And it lays out seven main areas for the research. (You can read it in full on the White House’s website, here.)

And here’s the thing about the White House even issuing that framework. It means there have been and will continue to be conversations between the White House and the Fed about a CBDC.

You see, in Washington, it seems like areas don’t communicate with each other in terms of getting things done (case in point, the budget drama).

But from my experience and contacts built up on the Hill over two decades, I can tell you that something as critical as this framework did not happen in isolation in the White House. It happened in relation to background conversations with officials or their staff at the Fed.

The Federal Reserve has been evaluating, discussing, researching, and funding prototypes to determine the possibilities of a CBDC for years.

CBDCs are part of the Frequently Asked Questions on the Fed’s website, as you can see below. They are not doing this for fun.

CBDCs top the list of frequently asked questions on the Fed’s website. Source: FederalReserve.gov

It might take years and require approval from Congress. Or it could not, depending on how they roll one out. (See our prior analysis on this here.)

But they do want to determine the best way – in terms of steps, logistics, technology, and political buy-in – to ultimately issue a digital dollar.

So what does this mean for dollar-denominated accounts or cash dollars outside of the United States?

Well, there has been no official announcement on that path yet so I’ll speculate here, too.

What seems logical to me is that people holding U.S. dollars in external U.S. dollar-based banking accounts would be given a choice, and potential deadline, to convert those cash dollar accounts to digital dollar accounts.

This might mean a U.S. bank operating in other countries, after that deadline, would no longer honor the conversion of cash to digital dollars. And that could mean that your dollars outside the United States could become useless in terms of buying power.

It could also mean that for people with dollar accounts in international banks, this conversion process and timing would be up to those banks to decide.

This could entail them offering a conversion path to their own digital currency. Which may be a digital currency based on the digital dollar, or to a digital dollar if that is logistically available.

As you point out, a digital dollar would particularly impact more dollarized nations, such as Panama and Ecuador or countries that have high inflation (which translates into lower buying power for citizens in their own currency and by default basing their external trade on U.S. dollars).

That’s because these countries, at the national level, might have to convert their reserve dollars at their central banks to digital dollars in order to trade in the global arena.

As a result, they might require their citizens do the same. This would actually lead to more dollarization for them – but of a digital kind.

At the end of the day, the move to digital currencies and the related conversion to those digital currencies may roll out in different ways depending on the country.

In most cases, these conversions will likely be handled by national or international banks operating branches in that country. In some cases, they might go through a country’s central bank, if it is set up to offer accounts and banking services directly to citizens.

But either way, my guess is that at some point in the future, cash will be relegated to a tiny sliver of exchange and a relic of history.

Law enforcement has had the names of people who are potential bad actors for many, many years. Isn’t this just another list that can be used to find the bad actors? And haven’t people asked for this type of predictability?

The real issue is privacy. But if people are concerned about privacy, why do they put their lives out on the internet for everybody to see?

I can see AI in law enforcement being used for a lot of good. On the other hand, as you point out, it can be used in a negative way too. But isn’t this true for most, if not all, forms of new inventions?

– Greg L.

Thanks for writing in, Greg.

To catch your fellow readers up, you’re referring to the September 14 essay from my colleague and Rogue Economics analyst, Lau Vegys.

In that essay, Lau warned about the risks of law enforcement using artificial intelligence (AI) to predict crimes.

I asked Lau to answer this one. Here’s what he told me…

Greg brings up a good point about this. It’s true that law enforcement has long maintained lists of individuals they consider potential threats.

But what sets AI apart in this context is its predictive capability. Traditional law enforcement relies on historical data and known individuals, while AI uses algorithms and data analysis to spot patterns and behaviors that could signal a risk before a crime even occurs.

The predictive element of AI adds a whole new layer of possibilities and ethical dilemmas.

The key worry here is making sure people don’t end up unfairly targeted just because of algorithmic predictions.

Now, Greg touches upon a fundamental aspect of the privacy debate. It’s true that many people willingly share aspects of their lives on the internet, particularly through social media and other platforms.

Does this equate to a complete surrender of their privacy rights?

I don’t think so. Privacy is fundamentally about control and consent.

Just because people choose to share certain things online doesn’t mean they’re consenting to have all their information exploited or used against them.

So, my concern here lies in how data is gathered, utilized, and potentially misused, both by private companies and government entities.

For instance, as you’ve probably seen, I’m concerned about the implications of Central Bank Digital Currencies (CBDCs). CBDCs raise a red flag for increased surveillance by law enforcement agencies.

Imagine a scenario where your financial transactions come under scrutiny simply because you made a payment near a suspected crime scene or engaged in seemingly innocent transactions that trigger suspicion.

This could potentially lead to house searches or frozen accounts until you can prove your innocence.

The power of such surveillance tools, particularly when misused or lacking proper regulation, presents a substantial threat to individual freedoms and rights.

But this goes way beyond CBDCs. And even if we put the AI aspect aside for a moment (though it certainly amplifies the issue), the growing reliance of law enforcement on digital data, including Google searches and location data is worrisome as is.

For example, there have been instances where warrants for such data were used to investigate individuals who hadn’t even been suspected of a crime. This raises significant ethical and legal concerns about the boundaries of surveillance and the protection of civil liberties.

For example, in 2018, a wrongful arrest happened based on Google location data in Arizona. Such incidents highlight how innocent people can get caught up in the web of digital surveillance.

Law enforcement agencies are increasingly adopting these practices, often using broad subpoenas for digital information. Once this door is opened, it can lead to a much more extensive data collection on ordinary citizens than we’re seeing right now.

But Greg is right to imply that technology is a tool, and its impact depends on how it’s used.

AI can enhance crime prevention, streamline investigations, and improve public safety. But it can also infringe on privacy and be used inappropriately if not regulated and monitored properly.

The challenge for us as society is to harness the benefits of AI while putting safeguards in place to prevent misuse and protect individual rights.

Now, if you’re in the U.S., your privacy is already at risk in another major way.

In July, without much fanfare, the Fed started laying the foundation of a major overhaul happening to our money.

That’s why I recorded a briefing to explain what it is… and my playbook for profiting from it. Watch it here to learn more.

And that’s it for this week’s mailbag! Thanks again to everyone who wrote in.

If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.

I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.

And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].

Happy investing… and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins