Welcome to our Friday mailbag edition!

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

Up first today, a question from reader Barbara on how central bank digital currencies (CBDCs) affect long-term investments like 401ks…

What will be the impact of central bank digital currencies on other investments held outside of the banking system – specifically IRAs, 401ks, and standard brokerage accounts?

– Barbara L.

Thanks for your question, Barbara!

Your IRAs and 401ks are long-term investments designed to help you achieve your financial goals over time, so I understand your concern.

But you must also remember that there’s a lot of uncertainty surrounding CBDCs. It’s still not “official” in the U.S. And other countries that are implementing CBDCs have different approaches, making it hard to predict the exact impact on your investments.

For one, the advent of the digital dollar could give rise to technical hiccups, regulatory hoops, and the need for upgrades that might take time and effort.

All that said, there are a few key points you should consider in the face of a digital dollar:

  • Regulatory Environment. Regulations will likely change as the digital dollar becomes a reality. Potential changes in tax policies, reporting requirements, and investor protections will add another layer of complexity to the equation. And they may impact your IRAs and 401ks.

    How? We just don’t know right now. But staying abreast of regulatory updates and seeking professional guidance will help you navigate potential changes effectively.

  • Market Dynamics. With CBDCs, the way transactions happen could change. This might affect investor behavior and overall market sentiment. And it could lead to some ups and downs as well as a bit of uncertainty in the short term. And yes, it could affect your portfolio. Here’s why…

The adoption of the digital dollar could shift people’s preferences towards digital currencies. This, of course, would divert attention and investment away from traditional assets.

Would it be a net negative for you?

It depends on the makeup of your portfolio.

Now, I cannot provide personalized investment advice.

But the introduction of a digital dollar could spur greater adoption of Bitcoin. As people become more familiar with digital currency through the digital dollar, it will naturally pave the way for easier acceptance of Bitcoin.

So, if you ever need another reason to add Bitcoin as a speculative asset in your portfolio, this is one.

Yes, Bitcoin is a volatile asset that undergoes periods of violent swings. Yes, it has fared very well so far in 2023. And yet, as I write this, the price of Bitcoin is still down about 55% from its November 2021 all-time high of about $68,000.

But that’s actually a good thing. It means you can still buy it at lower prices before big financial institutions like BlackRock swoop in.

That said, with Bitcoin, you never want to dive in headfirst.

Instead, we recommend investing a fixed amount of money on a regular basis, typically monthly or bi-weekly.

That way, you can buy more when the price is low and less when prices are high. This is called dollar-cost averaging.

Some convenient options for buying Bitcoin include PayPal or Block’s (previously called Square) Cash App. With these popular apps, you can start your Bitcoin portfolio with as little as $1.

But, again, remember that Bitcoin is a speculative asset. A small investment can go a long way. So don’t ever invest more than you can afford to lose.

Now, what about “brokerage accounts”?

Again, since the digital dollar doesn’t technically exist yet, please keep in mind that my answer is based on what I expect will happen.

I think that brokerage accounts will likely create a mechanism that can replace the cash you have in those accounts with the equivalent value of CBDCs. Before this happens, they will likely test this procedure so that you don’t lose the value of what you had in your cash account when the conversion happens. I also imagine they will let you know in advance that this is happening and when it will happen.

The takeaway here is that if you don’t want the cash in your account to be converted to CBDCs, you can invest that cash in other securities, such as stocks or ETFs. You can do that through the same brokerage account that you use for that purpose now.

A digital dollar should be worth the same as its paper counterpart. That means that if you choose to let your cash be converted to digital money, the value at that moment should not be changed.

Next, reader Paul is curious about the role of banks in the CBDC scenario…

Most commentators talk about the fear factor: fear of losing your dollars, fear of loss of privacy, fear of loss of control.

But few talk about the mechanism. If I remember correctly, you mentioned that, initially, the CBDC would work between the Fed and the member banks as some type of clearing house.

But if the CDBC is extended to individual accounts, what would become the role of the banks in that scenario? I am somehow skeptical that the Fed would implement something without the approval of its main shareholders.

What is your opinion?

– Paul B.

Hi, Paul!

You raise an intriguing question about the potential role of banks in this scenario. But before I give my take on it, let’s zoom back out a little and clarify what the Fed and its member banks are.

This is important since there’s a lot of confusing information about the Fed out there.

According to the Federal Reserve Act of 1913, each of the 12 regional reserve banks of the Federal Reserve system is owned by its member banks.

What that means is that the banks in each region are shareholders of their own part of the Federal Reserve system.

When the Fed first started, these banks put up the capital to get and keep their respective regional reserve banks operating. In return, they received stock in their Fed.

In that way, they are shareholders of the Fed. And the Fed is organized like a private corporation.

But it also has a political tie to the government. That’s because the Federal Reserve Board of Governors is appointed by the president and approved by Congress.

So the Fed is both a corporation and a government entity at the same time, and so are its interests… and, by extension, so are those of its member banks.

I’ve talked extensively about how the Fed would benefit from the advent of the digital dollar in these pages. As a government body overseeing the monetary system, it would gain enhanced control and oversight over people’s transactions. So much so that the Fed could have unprecedented financial control over your life.

A digital dollar would also enable the Fed to fabricate money out of thin air. That’s because it’s easier – and faster – to create a CBDC electronically than a fiat currency.

That said, you’re absolutely right in implying that a CBDC might disrupt the traditional role of banks as intermediaries. So, why would the Fed member banks be in favor of such a thing?

First of all, the Fed legally doesn’t need the approval of its main shareholders to implement a CBDC. Yes, member banks do play a role in the Fed system… But the decision to implement a CBDC rests with the central bank itself, along with other regulatory bodies and policymakers.

That aside, there are several reasons for member banks to be in favor of a CBDC…

For one, CBDC implementation will provide traditional banks with the opportunity to remain relevant in an increasingly digital financial landscape. By embracing CBDCs, banks can position themselves as key players in the evolving digital currency ecosystem.

As such, they’d remain proactive rather than reactive – or at the forefront of financial innovation.

Plus, banks and the Fed both see the digital dollar as a way to level the playing field in the payments ecosystem. And that, of course, is where the real money is.

Just consider this…

The global digital payments market size will be valued at $2,477 trillion in 2023. And nearly 40% of that is in North America.

For perspective, the global GDP in 2022 was roughly $95 trillion. So the payments market size is roughly 26 times the world’s total economic output. And it’s estimated to reach a staggering $5,849 trillion by 2030.

That’s why banks have been itching for a shot at the payments game, trying to keep up with PayPal, Venmo, and Zelle. For them, it’s a chance to step up, earn trust, and show they’re “dependable financial players” in what they try to paint as the “increasingly unstable digital world.”

Finally, with the digital dollar on the horizon, banks have a chance to gain new business prospects. By collaborating with the Fed and offering digital payment services and innovative financial products, traditional banks can unlock numerous avenues for revenue growth.

So, yes, there are many reasons for member banks to be on the same page as the Fed when it comes to the digital dollar.

In fact, both the Fed and banks are preparing for the eventual release of a digital dollar…

In the weeks ahead, the financial elites are unleashing the foundation of an all-digital dollar. It will be the first step towards embracing a new kind of currency.

The good news is, I’ve identified one-little known asset you can use to position yourself for what’s coming. And I reveal all the details in a special video presentation. To watch it, just click here.

Next, Kevin asks what will happen to cash and checks with the launch of FedNow…

How will people who rely on cash and checks for paying bills (eg. rent) live under FedNow?

– Kevin S.

Thanks for writing in, Kevin.

There’s quite a bit of confusion about what FedNow will look like and what it will do. So let me clarify a few key concepts.

As you may recall from previous essays, FedNow will allow businesses and people to send and receive instant payments 24/7, 365 days of the year.

In practice, when you initiate a payment, such as sending money to a friend or paying a bill, that payment will be processed nearly instantaneously, regardless of the time of day or week.

But, as an ordinary person or business, you won’t directly interact with the FedNow system. FedNow accounts for end-users will also not exist.

That’s not to say that FedNow won’t have implications for those who predominantly use cash or checks down the line.

The push away from cash is not far-fetched… It’s already happening.

But the impact of FedNow on cash and checks will also depend on the unique situations of individuals who use them and how willing financial institutions, landlords, and service providers are to embrace the changing world of payment technologies.

If your landlord is no longer willing to accept your check or cash, that means you won’t be able to swing by their office and pay that way.

On a large scale, the switch will be a gradual process…

But for now, cash and checks will continue to be utilized alongside electronic payment methods.

That’s because there are many options to use physical cash and checks. One example is cash-to-card services that convert physical money into prepaid debit cards or electronic payments. Banks, too, already let you deposit checks using your phone through mobile check deposit services.

These kinds of services help bridge the gap between the digital world and good ol’ cash. And they aren’t going away any time soon…

That said, the launch of FedNow is happening later this month. And it’s one of the first steps towards embracing an all-digital dollar.

It will lay out the ground for a CBDC in the near future. So it’s a good idea to start preparing yourself for the changes it could bring. 

And I’ve identified one way you can position yourself ahead of FedNow… To find out how, watch my video presentation right here.

Finally, our last question this week comes from reader Alan, who wants to know about gold prices…

Why has gold been falling?

I can’t help but wonder what’s the reality of the situation. With 5,000 years of experience with gold, with central banks rushing to get more and more gold, with newsletters urging gold, with gold being spoken of as partial support of a new BRICS currency, with governments discouraging gold as a threat to their currency, and yet with gold falling, what is really going on?

I have to admit with the various contradictory messages about gold, I’m suspicious about manipulation tamping down buying by the public and making sure elites get more at a good price.

– Alan G.

Thanks for writing in, Alan. These are important questions.

As we all know, inflation has taken off in the last 16 months. Despite the recent respite, at 4.05%, we’re living with a level of price inflation we haven’t seen in years.

Meanwhile, gold is up about 6% since July 2022.

That’s nothing to sneeze at. But it’s still not a great performance if you compare it to that of the major stock market indexes.

The S&P 500 is up 16% since November 2021. And the Nasdaq has risen nearly 21%.

 So, why hasn’t gold done better?

Well, gold’s growth has been hindered by the Fed’s 10 interest rate hikes since March 2022, when the interest rate was zero. This is the fastest pace of rate hikes we’ve seen since the 1980s.

Rising interest rates are considered a bearish sign for gold and gold stocks. That’s because, as legendary investor Warren Buffett once said, “gold doesn’t pay any interest.”

So as interest rates rise, folks often choose to invest in interest-bearing accounts instead of buying gold.

Yet, in the most recent Federal Open Market Committee (FOMC) meeting, central bank policymakers decided to pause interest rate hikes. I call this Stage 2 of the Fed’s three-stage pivot back to cutting rates.

It means the Fed is realizing it can’t keep raising interest rates forever.

That’s because the more debt the government creates, the higher the interest payments on that debt will be… unless the Fed eventually lowers rates, or buys more of that debt.

That’s why I believe the Fed will continue its pivot to cutting rates.

And that, of course, bodes well for gold.

Now, let’s turn to your thoughts about a BRICS gold-backed currency…

(As a reminder, BRICS represents the world’s leading developing countries. It’s short for Brazil, Russia, India, China, and South Africa.)

Here’s the thing. In order for any entity to introduce a gold-backed currency, it must have sufficient gold reserves.

So all that gold needs to come from somewhere… And the BRICS countries don’t have infinite piles of gold sitting around.

In fact, the U.S. holds almost twice as much gold as the “main” BRICS nations, Russia and China, combined.

China’s gold reserves currently stand at only 3.5% of central bank holdings.

What about Russia?

Yes, the country boasts some of the biggest shares of central bank gold reserves, making up roughly 20% of global reserves.

But don’t hold your breath about it becoming part of a “new BRICS currency” any time soon. With the war still raging in Ukraine and sanctions on Russia in full swing, it needs that gold now more than ever.

You also have to remember that for an international currency to be successful, it must:

  • Be safe. None of the BRICS currencies meet this criterion. So long as the Chinese Communist Party is in power and Putin is in Russia, both the yuan and ruble will continue to be considered anything but safe.

  • Have a stable value and market depth. Most BRICS, with the exception of China, don’t have large liquid bond markets needed to prop up their currencies. But even China doesn’t have a floating exchange rate that is determined by market forces, as is the case with the U.S. dollar. Instead, it pegs the yuan to the U.S. dollar. This is a dealbreaker for the world’s major central banks.

  • And have the ability to move without restrictions. BRICS nations are no strangers to capital controls, which limit the flow of foreign capital in and out of the country. China has them. So does Russia. This means that their capital markets aren’t free, which is a problem for any central bank wishing to hold their respective currencies as reserves.

So where does this leave the gold-backed BRICS currency?

The only reason anyone would ever use it is if they wished to exchange it for gold.

This means that the BRICS gold-backed currency would quickly lose its shine. People would exchange it for foreign goods only to see foreigners turn around and exchange it for gold. Pretty soon, countries like Russia, South Africa, and Brazil would find themselves having traded their stockpiles of gold for a basket of Western goods and services….

Could they trade with China instead? To some degree, yes… but it’s not like they could reinvent and reorient their economies exclusively towards China overnight.

Now, back to gold as an investment…

Historically, the metal thrives in an environment of financial uncertainty or inflation.

For instance, while gold fell in the initial shock of the 2008 financial crisis, the chaos that ensued triggered a massive rise in gold prices.

Between September 2008 and October 2011, gold soared about 170% to $1,900 per ounce. Meanwhile, the S&P 500 returned a meager 6.9% in the same period.

All that said, physical gold isn’t a crypto-like speculation that could soar hundreds or thousands of percent overnight. And it never will be.

But, if history is anything to go by… wherever gold goes next in the short term, it will continue to be a safe store of value over the long term.

Finally, you mentioned concerns about manipulation…

While I can’t speak to the degree it might be happening, you’re not alone in thinking that there could be powers tampering with gold prices to keep it down. That’s so they could buy in at lower prices. It’s something to watch out for, especially when certain powerful parties seem to scoop up more gold at seemingly good prices.

That said, so far, the biggest culprits have been banks…

In 2019, JPMorgan admitted wrongdoing and agreed to pay more than $920 million to resolve U.S. claims of multi-year market manipulation in both gold and Treasuries. It was the largest ever sanction against a bank over spoofing by a wide margin.

In subsequent years, a handful of traders at international banking giants like Merrill Lynch and Deutsche Bank AG were also found guilty of market manipulation.

However, we should approach these suspicions with a healthy dose of skepticism. Keep in mind that they often arise when the price of gold is not performing well, rather than from proven cases of market manipulation.

And since there are so many players involved in the physical gold market, overall demand will prevail over any form of tampering.

Plus, inflation isn’t letting down anytime soon. All you have to do is look at the prices of staple food groups, for example.

So now is still a good time to buy into gold.

The best way to buy gold is with a combination of physical gold and gold stocks. You can buy physical gold online through accredited places like the U.S. Mint.

You can also buy a gold ETF that is backed by physical gold. (I covered this in more detail in a mailbag issue.)

Lastly, I’ve identified another way to profit from gold. It has a history of turning every $10,000 invested into more than $850,000…For more information, watch my presentation about it right here.

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].

Happy investing… and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins

P.S. A CBDC is closer than you might think, and the first domino is set to fall on July 31…

That’s when the Federal Reserve will unleash the foundation of an all-digital dollar. I believe it will mark the end of our money as we know it.

The good news is, if you position yourself ahead of this trend, you can benefit from this historic shift…

In fact, I’ve found one-little known asset that can help you emerge as a winner. It has the potential to deliver as much as 50x profits.

I put the details in a new video presentation I just released. To watch it, click here.