Regulatory changes in the US allowing for bank custody of digital assets are the acceptance that digital assets are not going away and in fact are the future.

 

No one needs to allow the banks to set interest rates based on capital availability or risks. CB’s can now create a defined cost of capital to whomever they please (if they get the powers by the Governments, which will come).

This is bad news for the banks who are about to be attacked by CB’s, FinTech and Crypto. The are losing their role in the financial system over time.

Don’t forget, it absolves any spending responsibility in a crisis from governments and after 2008 and 2020, they are desperate for it..

It also will push behavioural economics to the forefront based on big data and real time activity data. CB’s can now create incentives directly as rewards, or punishments. They can affect human behaviour in a way that is much less blunt than traditional monetary and fiscal policy

There are enormous downsides and there are enormous upsides too too all of this. Many will say it’s taking even more freedoms away and in someways it is. It also gives those disadvantaged by lack of available capital a better chance – a key problem.

Right now it has to be via debt at punitive rates but this changes all of that. Poor can get direct transfer payments with the debt in the CB balance sheet. Its the key step towards UBI, which too is good and bad….

And the reality is we don’t really have any freedoms from governments or central banks if we operate in the main system (i.e. ex-gold and bitcoin) and the big tech firms already have perfected behavioural economics as a way of changing human behaviour.

BUT, the key part here outside of a totally revolutionary way to collect taxes, give incentives and overhaul the entire system is an implicit agreement at IMF level that central banks can run unlimited balances sheets if they combine forces…

The move eventually (in late say 3 to 5 years) away from the dollar towards a basket of currencies (the LIBRA idea, which was the lightbulb moment), then they can all agree to increase balance sheets together to avoid single countries getting penalised via FX.

The new system will mean a further debasement of the ENTIRE fiat currency system. Fiat globally will be worth less versus hard assets.

It also create incentives systems for other nations to opt into a hard currency system to attract capital. And that means that gold, Bitcoin or energy-backed currencies could become THE way to circumvent a system of ever lower value.

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This paves the way for global regulatory arbitrage.