CBDCs Will Lead to ‘Dangerous’ World Without Privacy or Cash, Gold is Your Best Protection – John Butler

(Kitco News) - Central bank digital currencies (CBDCs) will cause financial privacy and anonymity to end, as cash will likely be eradicated. That is according to John Butler, Investment Director at Southbank Investment Research, who also suggests that gold is the best hedge against this future scenario.

"Moving headlong towards CBDCs in the current political context is very dangerous," he told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "It becomes a very frightening proposition to hand over any and all financial privacy to some central organization."

CBDCs are programmable, digital tokens issued and controlled by central banks. They operate as fiat currency and can be used as a medium of exchange. Proponents of CBDCs claim that they will improve financial inclusion and efficiency while reducing the likelihood of bank runs and money laundering. However, critics warn of CBDCs' potential to be used as a tool of surveillance and control.

Figures from the Atlantic Council show that 114 countries worldwide are developing CBDCs, and 11 have fully adopted them. Canada is the latest nation to advance a CBDC agenda, currently asking the public for consultation about moving ahead with its own official digital currency.

Butler, who has over 25 years of experience in finance, suggested that CBDCs could take a"dystopian" turn for the worse, cutting off access to funds for political dissidents, or being used to socially engineer the population-at-large.

"We absolutely should be putting the breaks on it," he said. "If they do choose to move in this direction, be very afraid."

Bank collapse and CBDCs

The recent failures of the banks First Republic, Silvergate, Silicon Valley Bank, and Signature have set off an ongoing banking crisis. First Republic, the second-largest bank in U.S. history to fail, was absorbed by JP Morgan in a last-minute deal with Treasury backing.

Butler forecast that a crisis could be used to fully implement CBDCs as depositors grow weary of "weak banks" failing.

"[Regulators are] going to step in and flip the switch and go wholesale over to CBDCs, so you won't have to worry any of those risks of the banking sector anymore," he stated.

CBDCs make bank runs "impossible," said Butler, because the monetary authorities can prevent depositors from withdrawing their money.

"The funds will have to stay in the banks [during a bank run]," he observed."We might see something similar this time around as the current crisis escalates."

A CBDC-defensive portfolio

Gold and silver are the best defense against the future risks of CBDCs, Butler claimed.

"Hold precious metals," he said. "You can get a physical metal stored outside the banking system with a precious metals custodian. That's always a prudent thing to do in any case if you're concerned about either inflation or a financial crisis."

Citing prior historical episodes, Butler observed that gold has a positive rate of return during times of zero, low, or negative interest rates.

"Gold actually becomes materially more attractive as a store of value in a low or zero rate world, one that CBDCs would find it easy to implement," he said. "Gold's traditional, timeless I would argue, store-of-value properties are actually enhanced by CBDCs in that simple way."

He also suggested that for those operating within markets, holding equities that generate a reliable "cash flow" is a good idea, especially when dividends hold their value against inflation.