Welcome to our Friday mailbag edition!
Every week, we receive great questions from your fellow readers. And every Friday, I answer as many as I can.
This week, the conversation surrounds a hot Inside Wall Street topic – central bank digital currencies (CBDCs). Also, we dip into a lesser talked about topic: numismatics…
I was glad to see you addressed the CBCD issue in a recent mailbag. But, as I have written before, nothing is ever said about what will happen to all of us who are expatriates and dependent on our Social Security benefits.
How will that be handled for those of us who need to convert U.S. dollars to other currencies under the CBCD model? Any insight you have would be greatly appreciated.
– Beth F.
Hi Beth, thank you for your question. I’m sure it’s a concern shared by other readers who rely on Social Security payments for their financial stability.
At this time, there are many details of a central bank digital currency (CBDC) roll-out that are still unknown – even by the Federal Reserve. So, I’ll address what could happen under a CBCD system.
First, the U.S. dollar will remain the primary currency for most global transactions, even under the CBCD model.
For expats, like my dad was when he was drawing on his Social Security, the most critical issue is getting your checks on time and using them without interruptions…
There are pluses and minuses to how a CBDC could affect this.
On the plus side, CBDCs could make it faster for expats to receive Social Security payments. That’s because instead of relying on local banking channels, you could directly receive that money through the CBDC platform, eliminating any other intermediaries or delays.
A U.S. CBDC would eventually be available globally. In that case, expats could access their funds no matter where they are in the world. That could be useful for expats who travel but still want access to their Social Security payments.
Now, those developments would take years to unfold. We don’t even have a CBDC in the U.S. yet, but we will.
On the other hand, here’s what concerns me.
First, privacy.
If all Social Security payments are attached to CBDCs, the Fed would have a record of every payment made from that money. That compromises your privacy.
That’s a bigger issue in the case of a security breach or cyber-attacks. This could expose sensitive information about your Social Security number and benefits, and potentially lead to identity theft or fraud.
Second, CBDCs require new systems to be built to process them. Those new systems would link your bank to what could be a centralized CBDC system.
That could come with a cost, and you could get hit with higher transaction fees or slower processing times.
Third, there could be compatibility issues between the new CBDC system and existing banking systems. And that could cause potential disruptions to your Social Security benefits.
And finally, any new system is at risk of technical glitches. CBDCs are evolving rapidly. And I fear that any associated systems could be introduced before being properly tested or made safe.
In summary, there are positives and negatives for your Social Security checks, but the good news is that none of this is happening tomorrow. This is a development that is many years off.
That gives us time to plan. And I recorded a video on things you can do with your money to do just that. You can watch it here.
Greetings, Nomi. Please know that your mailbag responses are so thoughtful and informative. Thank you. At 88 years old, I am still a novice at investments.
I have a question about “Numismatic Appreciation.” Over the years, I have collected pre-1964 silver coins, including uncirculated Morgan and Peace dollars, quarters, and dimes. In the 1980s, I purchased some Krugerrand gold coins.
I have a dilemma: I appreciate and marvel at the artistry of coins and the feeling of economic predictability versus paper. When does one know if it is time to cash in or should collectibles eventually be exchanged for the anticipated digital currency?
– Chrisula A.
Hi Chrisula, thank you so much for your kind words. I’m SO impressed that you are still inquisitive about your investments. I’m a big fan of expanding knowledge and sharing information with others.
Also, you might represent many readers here who own physical assets like coins or historical bills. I have a tradition where I buy my niece and nephews silver coins from the U.S. Mint on their birthdays.
Your collection of pre-1964 silver coins, including Morgan and Peace dollars, quarters, and dimes shows a combination of historical significance and craftsmanship.
And in the 1980s, Krugerrand gold coins were popular amongst collectors and investors. They were minted in South Africa and are famous for their pure gold content, limited mintage, and original design.
Now, to address your dilemma about cashing in for a digital coin.
First, for readers not aware of the term that you used… Numismatic Appreciation refers to the increase in value of collectible coins over time.
Second, keep in mind that I can’t give personalized advice. But, when deciding whether to cash in or hold on to your coin collection for any reason, there are several factors for anyone to consider:
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Personal Financial Goals
Different people have different financial security goals. If you are saving for retirement or a down payment on a house, then cashing in a portion of your collection can make sense.
But, if your main goal is to preserve wealth for yourself or as a legacy to your family, you may want to keep that collection.
Either way, you should get your collection appraised by a reputable appraiser before making any decisions. I don’t trust coin dealers – they are mostly sleazeballs out to take as much money from you as possible.
So, you must do your own homework. The best way to get a sense of what your coins are worth is to look up where similar coins have actually sold. Do this on a platform like eBay.
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Market Conditions
If you decide to sell a portion of your collection, it’s important to monitor current market conditions. For instance, gold prices rose last year. And if the Fed cuts rates later this year, as I predict, it will weaken the dollar and lift the prices of gold further due to their inverse relationship.
On that basis, after you consider Point 1 above, now could be a good time to cash in a portion of your collection.
The end of the year (after rate cuts) could be another time. (If it were mine, I would not suggest converting to a digital currency or using that collection to finance purchases of crypto-currencies, like even Bitcoin – it’s just too unique.)
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Considering Digital Currency
So, on to digital. While digital currencies may seem like a new concept for some people, they have gained traction over the past few years. And as more individuals and businesses use digital payment methods, digital currencies like Bitcoin will gain more momentum and value.
But, when it comes to a central bank-created digital currency, or a CBDC, it’s a different story.
When the Fed eventually issues a CBDC, private banks may ask customers to convert their accounts to digital accounts. Then, later on, they will make that ask a requirement. This is something we’ve written about a lot.
This could take several years to unfold. But CBDCs, because they are programmable currencies, can be programmed to collect broad information about all of your financial choices.
In that way, they compromise your privacy. And if something goes wrong with a digital platform, such as fraud, cyber-attacks, or other reasons, it could be hard to recoup your digital balance.
These same pitfalls come into play if you want to provide your account to future generations.
You don’t have that problem with collectibles. You can physically view and control them.
And that’s all for this week’s mailbag. Thanks 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].
In the meantime, happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins