The Transformation Into a CBDC Era: Save in Assets and Spend Digital Currency

Key Takeaways

• Central banks are diversifying away from US bonds and stockpiling gold, signalling a shift in fiat's role from a store of value towards a purely transactional medium.
• As most nation states move towards CBDC legislation, digital fiat issued directly to citizens looks increasingly likely, and it is poorly suited to long-term saving.
• A two-tier system may emerge: digital currency for daily spending, and hard assets like gold and silver for savings.

As central banks diversify away from US bonds amid strain on US debt over the last decade, with record money printing and devaluations to fund spending, we see the writing on the wall for what's to come: a new era of fiat's role, away from a form of saving, to purely transactional.

Amid this transformation, it's not just central banks that seek an alternative store of value but investors and individuals alike.

Perpetual government deficits with record breaking spending create an embedded inflation system that accelerates. While the last 50 years have slowly revealed fiat's lack of suitability as a saving instrument, this becomes increasingly visible and evident in the short term in an accelerated environment as value deteriorates faster.

As most nation states move towards CBDC legislation, in a hyper digital world being built on-chain, digital fiat units directly issued from central banks to citizens become the most likely outcome. Digital units totally unfit for long term saving with assets that replace savings accounts.

Global central banks reinforce this by cutting dollar holdings rather than increasing them, citing political risks and sanctions as precedents, currently stockpiling gold at roughly double their usual rate since the Eastern European conflict started in 2022, according to World Gold Council data.

Gold and silver as savings vehicles have navigated multiple monetary transitions and this one is no different, remaining stable, enduring assets through seasons of human turbulence.

Silver's additional industrial demand (solar, electronics, EVs) can amplify gold's moves, and it serves as a more volatile key savings component for diversification.

Looking forward it appears a two-tier system emerges: digital dollars for daily use (increasingly monitored and controlled via CBDC-like rails) versus hard assets for savings.

With its current network effects, deep markets and a lack of a viable full replacement, a total collapse of the dollar seems unlikely and overstated. However, a mutation into a purely digital spending instrument, while being a tool for funding government spending through expanding supply, looks all but unavoidable, while hard assets take the role of savings instruments for individuals, investors and central banks alike.