DRIGGS, IDAHO – On Monday, we learned that China has defeated COVID-19 and its economy has made a complete recovery. In fact, it seems to be booming…

Today, we learn that China will now be the first nation to launch a digital currency…

More below…

Hunkered Down in Rural America

Greetings from rural Idaho…

My family and I spent the last two years traveling around the world. But recently, we shelved our passports…

We’re currently living in one of the coldest, snowiest, bitterest places in North America.

We’re going to spend the winter here, hoping for giant snow dumps, and then going skiing in the nearby mountains…

We’ll emerge again in April. In the meantime, we’re hanging out together in our Airbnb, doing homework, playing board games, eating well, and watching educational television.

Currently, we’re watching Have Gun – Will Travel, a classic Western television series. My friend Doug Casey – a legendary speculator who made his fortunes in the gold markets – recommended it to me.

[Editor’s Note: Doug is giving away his No. 1 Gold Secret… and detailing his top 5 gold plays today. Watch this for all the details, straight from Doug.]

I found the whole series on YouTube. Here’s what Doug says about it:

Have Gun – Will Travel is the original thinking man’s Western. Paladin, who’s perfectly played by Richard Boone, is, if you will, a professional problem solver. More importantly, he is a true Renaissance Man.

Each 30-minute episode opens with him at his hotel in San Francisco, living the high life, a sophisticated man of the world. He might be outplaying a chess master, or commenting on a rare wine, or returning from the opera with the prima donna. Or he might be reading the paper, looking for a situation ripe for him to set right.

After the catharsis, when justice is done, Paladin usually offers a quote from one of the Greek or Roman classics, or at least Shakespeare, to enlighten anyone left standing.

We’ve watched five episodes. It’s kid-friendly and we love it so far…

(We consider watching Westerns and reading cowboy books to be part of the kids’ homeschool curriculum.)

Back to China’s digital currency…

Pushing the Boundaries of Fiat

China just completed the first “human trials” of its new digital currency. They randomly picked people in four cities to receive small amounts of this new “digital” yuan.

The biggest trial was in Shenzhen, where they gave $1.5 million worth of the new digital currency to 50,000 people, selected at random. Then they gave these testers a chance to use it in their day-to-day lives.

It worked, I guess, because now they’re taking the project to the next stage…

Last week, China’s central bank published a draft of the law that will make China’s digital currency and payment network legal. (And make all competitors illegal.)

“But, Tom, aren’t all currencies these days ‘digital’?”

My response: Yes, they are. But when we talk about digital currencies, we’re talking about a new breed of currencies that don’t require bank accounts to hold them and spend them.

Take China’s new digital currency, as an example. The online wallet is accessible via an app that is not linked to a bank account. Effectively, you become the bank. And then you make payments via smartphone scans.

I read that China’s new digital currency even works when you aren’t connected to the internet and you don’t have a cell signal.

The Slow-Motion End of Banks

In my opinion, we are witnessing – in very slow motion – the end of banks.

If you think about it, banks are a holdover from an age of physical money, like gold or paper cash, when we needed a safe place to store our savings. In the digital world, storing money in the bank is as obsolete as a vinyl record or a tape recording.

This will obviously have big implications for finance. The biggest implication, I believe, will be inflation.

Once the central government gets control of the money supply, there will be no limits on their ability to create new money supply. Velocity will finally start rising. National currencies will devalue…

Anyway… I’m getting off subject…

Going Fully Cashless

China is already largely a cashless society.

When Kate and I were there last year, we used cash, which we drew out of the ATM. But most people, we noticed, did not use cash. They used mobile payment apps.

We weren’t allowed to use mobile payment apps as we weren’t Chinese and we didn’t have Chinese bank accounts.

Sometimes, we went places where cash wasn’t accepted. In those instances, we had to persuade kind strangers to make the payment for us using their phone. Then, we reimbursed them with cash.

The problem with China’s new digital currency trial, they found, was that testers already use – and are comfortable with – other digital payment apps, like Alipay and WeChat.

To get the market to adopt the central bank’s new digital currency, they’re going to have to convince people to switch away from Alipay and WeChat and over to the government’s new payment rails…

If anyone can make this work, it’s the Chinese. They have the most societal “pull together” of any country on Earth…

We’ll see.

– Tom Dyson

P.S. Meanwhile, the U.S. has the least societal “pull together” of any nation on Earth. The U.S. is a truly divided society, where everything gets mashed up and turned into politics. Even this pandemic can’t get anyone to come together and cooperate.

Is it any surprise that China has taken over as the engine of global growth? This short video makes the point…

Like what you’re reading? Send your thoughts to [email protected].

FROM THE MAILBAG

A reader disagrees with Tom’s bitcoin theory in the October 12 postcard, “Bitcoin’s Fatal Flaw”… while others share their opinions on bitcoin infrastructure and what’s valuable as money…

Reader comment: A couple of thoughts about your theory on bitcoin. First of all, paper money and metal coins are not a “useful material in their own right” either… They are only useful as long as they can be spent to buy something of value! Bitcoin is already being used to purchase things of value… and that usage is growing every day.

Secondly, in your comparison, there is virtually an endless supply of nails… or at least, more can always be made. That is not true for bitcoin… There are and will always be no more than 18 million bitcoin. So as usage increases, supply and demand almost assures an increase in value!

Thirdly, money can be counterfeited, stolen, and money transfers hacked… which is virtually impossible with bitcoin. That is why it WILL be successful as transactions that are secure will save EVERYONE a LOT of money! Hence, sorry to say, I do not agree with your hypothesis… but appreciate your perspective!

Reader comment: The bitcoin network will fail if there are not enough “miners” maintaining the network. The “miners” will quit working if they are not paid enough to cover their electricity costs. (I have quit.) The “miners” are paid with newly “mined” bitcoins and transaction fees, but the reward of new bitcoins halves every year, and the transaction fees are inadequate.

Also, most “miners” work not on their own, but in large “mines.” The integrity of the network requires many independent “mines” in order to prevent fraudulent transactions. However, as more “miners” quit, some “mines” are closing, leaving only a few big “mines” in operation. This poses a potential threat to the integrity of the network.

Reader comment: Is bitcoin money? Anything that you believe you can exchange in your community for something of value to you can act as money. Bitcoin, scraps of paper, cigarettes, gold, shells, can all act as money if your community accepts these as a medium of exchange. Some forms of money have intrinsic value, but this is not required. Whatever their forms, what matters is that the money can be exchanged.

Good money will hold its value. Therefore, good money can be used as a store of value. My view is that only money with intrinsic value will hold its value. While bitcoin can be used as money, I am unconvinced that it will hold its value, and like you, I choose gold as good money.

Tom’s note: As always, thank you for your messages! Please keep writing us at [email protected].