CBDCs, De-Banking and lessons from Nigeria

“Programmable currency means programmable citizenry”

Recently, Nigeria ran a failed experiment with implementation of a Central Bank Digital Currency called the eNaira. You can read more about it here.

Here's how it went in a nutshell (emphasis added):

"When February 10, 2023, arrived and about 80 percent of the $7.2 billion, previously in private hands, ended up in digital accounts as CBDC, the poorer segment of the population (over half of the people) still did not have bank accounts. Despite assurances from the CBN that physical cash would not be eliminated until CBDC was fully operational, half of the nation was left with old, worthless banknotes! Commuters to and from the capital were left without cash to pay for their return transportation. Many small businesses, a significant part of the economy that relies on cash payments, closed because their customers had no money to pay.

It is easy to understand why violent riots erupted in the country on February 16, 2023, resulting in casualties. Deprived of their entire wealth, desperate and hungry people took to the streets, demanding the reinstatement of the validity of the old paper currency."

In reading about this tumultuous implementation, you might find yourself thinking - well, that kind of chaos couldn't happen here. In Nigeria, half the population is impoverished and unbanked. Here, virtually everyone has a bank account. Hardly anyone would be left high and dry with no access to digital dollars.

Yes, actually, only 4.5% of US households are "unbanked" according to the FDIC. That makes for a very different landscape for the implementation of a CBDC. When half your population is in the same boat, a grey or black market will develop and find a way. And indeed, barter and trade for services emerged to fill a gap. And in 3 and a half months, the government realized it had LOST control rather than gained it. The CBDC is still there, but one of a few currency options. The monopoly is abandoned, and the monopoly is where the real threat of a CBDC lies.

This is also interesting:

"On October 25, 2022, one year after the national referendum on the establishment of CBDC in Nigeria, in which 99.5 percent of the citizens voted against digitalizing the currency, the then president of the country, Muhammadu Buhari from the Fulani tribe, issued a decree that despite the opposition of the majority of the nation, the financial revolution would still take place."

The referendum lost with 99.5% against, but the government did it anyway.

Here are some key takeaways from the failed eNaira experiment:

1. The forces behind central bank digital currencies are determined to move forward, even if they are deeply unpopular.
2. Yes, you have a bank account today. So do 95% of your fellow citizens. But anyone can be de-banked, like the Canadian truckers were, and like Nigel Farage was.
3. As long as the-powers-that-be do not de-bank too much of population all at once, they can probably maintain control of the majority by making examples of those who step out of line.
4. To that end, as Jonathan Newman puts it "Programmable money means programmable citizens."

If you somehow find yourself in that targeted minority, who will come save you? You're going to have to save yourself. What would you do if you found yourself with no access to cash, or locked out of your bank accounts? Better have something tangible on hand to fall back on, just in case. CBDCs are likely coming, whether we like it or not.

Have some gold on hand. Many experts we are talking to think gold will become an even more critical part of your diversification strategy and hedge against the enormous third party risk that CBDCs could bring.

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