The best aspect of this entire system is that it will be entirely built upon code. Everything from taxes (fees) to businesses running their bookkeeping will be components of the overall larger system. This means once built for one country, it can be shared to others to build the same system for themselves.
Whereas we have invested in other economies through tax payer money before, the funding all too often gets lost within failing financial systems producing zero impact to global economic measurements. Most top of mind, those within Latin America. However, by sharing the framework for our own functioning, we allow other global economies the blueprint to create their own CBDC and likewise grow the network of economies working within the framework.
The more countries using the common framework, then, allows for the same methods of yielding to occur within themselves. For example, a software company in, say, Nigeria would be able to provide a service that may have global presence. However, they would only be using their native currency as payment. Thanks to Nigeria using the same framework, though, would allow those across the world to convert their payment into the Nigerian currency. This would then increase the yield of the Nigerian company and thereby increase Nigeria’s exchange rate relative to all other countries all in real time as transactions balance globally.
The Nigerian firm then may gain the interest of investors and decide to go public. At this stage the asset would be able to be purchased using any currency on the network as long as the CBDC would support it. USA investors would then be able to use USD to purchase yield payouts. However, their yield payout ratio would then go through the global exchange rate relative to the firm’s CBDC holdings and also incur fees both through Nigeria and also USD.
In the above example thanks to fees both governments would be able to profit from a firm growing. As yield would be assessed fees on both fronts, this would enable governments to instantiate their own taxes or tariffs based on a country by country basis.
For example, the United States would want to aid certain developing nations but penalize those who may be enemies of state. By controlling fees associated to yield earnings would prevent capital from having incentive to invest in certain markets. At the same time, this could be set as a ratio against another CBDC so that investment yields would always benefit one country’s exchange rate over another. Algorithmically, no external investment would be able to negatively impact an exchange rate. The government having full control over how much they could help inflate another currency.
A global economic system leveraging the same framework also introduces radical transparency into preventing actors from either avoiding taxes or otherwise moving money illegally. Wallets, whether individual or business, will always be tied to a government ID. Meaning all assets assigned to a person will be tracked via a single point. Although a wallet may hold assets from another country, that country’s government ID system would also have insight into the movement of assets.
Furthermore any business starting out will only yield interest payouts when they have positive revenue flow through it. As investments within a company don’t produce yield and are capped at a firm’s debt ratio, there is no incentive to create shell companies. Funneling of money would have to go through positive transactions and therefore be susceptible to taxes across various CBDCs.
This means that there exists no way to circumvent taxes or tariffs. A large transaction of money from one currency to another would be done at its given exchange rate or not be possible at all pending a government not supporting a user’s wallet to hold the ID.
Cryptocurrencies are currently having their wild west moment as governments across the globe figure out exactly how to regulate and enforce policies against them. However, choosing a standardized economic system based either on one or a few blockchains helps to make the space regulated and more efficient.
Cryptocurrencies would become tokenized or split into assets that would be custodians or holders of the underlying currency. These could be banks or other financial institutions. Their assets would then be an aggregate total of the cryptocurrency asset relative to the amount within custody and the market exchange rate for the said currency.
This means that in order to “cash out” or exchange a currency into another would have to take place through a custodian account holder. As crypto asset tokens would have their own yield rates, the money produced from yields would instead only come in the form of the underlying CBDC used to purchase said crypto. This ensures all taxes and fees are assessed whether crypto or a company’s asset. Governments would then have the power to treat crypto’s fee structure the same or different relative to other assets.
However, cryptocurrencies could still have the ability to transact on their own chains. As they would not be officially supported via government wallets they would still be free to transact peer to peer. Without a custodian for these assets, though, they would have no way to enter the global economic system and likewise be given an exchange rate. Custodians of new assets would have to go through government approval before being listed and therefore have all fees adjusted before markets could start to be made.
Regarding money laundering via unsupported cryptocurrencies, this money would always be trackable via custodians. Once a custodian would receive a lump sum of crypto, it would immediately add to the given assets value. However, the token of receipt or asset would then be tied back to the government ID of the depositor as the custodian would need to provide the linking requirement before custodial services would be enabled. A launder then would then still be assessed fees either ongoing through holding the yield or as a lump sum ratio based on the exchange rate.
With crypto’s only having access to the global financial system through custodian’s it means that in order for a cryptocurrency to have any global impact, it must be compliant with all regulations. Peer to peer blockchains may grow to be valuable for nefarious purposes but without the ability to be transferred into the global system, inherently lose their value. By governments granting custodians permission to join the network it actually decreases the overall risk a cryptocurrency may have on the global financial system as all guardrails would be in place regarding the tracking of assets.
By wrapping all assets including cryptocurrencies under a common economic framework encourages the standardization of how exchanges happen. For example, Bitcoin uses an extraordinary amount of power to perform transactions. The same can be said for all financial institutions using a myriad of mainframes and traditional databases spanning potentially decades old. By using a common framework for how transactions happen, electricity needed for transactions is rapidly reduced.
Using Bitcoin, again, as an example. Its native peer to peer network is expensive to run and can only be accepted by those having another Bitcoin wallet. However, by having Bitcoin deposited into a custodian would then enable the custodian’s asset of bitcoin to run not on Bitcoin’s power hungry network but instead the more power efficient network of the entire system. This means that all transactions using the custodian’s asset will avoid the inefficient Bitcoin network while also enabling the real time exchange capabilities of the network. You incentivize users not using the more power hungry network by opening up its usage to all those on the network.
For financial institutions using older more inefficient technologies to handle their accounting, you now enable them with a system with drastically reduced operating costs. As these firms would wish to run their own accounting “nodes” of the system they would then be able to know that regardless of underlying hardware they choose the software layer will remain the same. This means that they can always be upgrading to new components without worrying about compatibility and thereby further reducing their electricity usage on an ongoing basis.
Furthermore, with the entire global economy running on the same network it will mean everyone is looking for more efficiency. As it would be code, this means once a firm finds efficiency it can thereby be applied to the entirety of the network reducing electricity costs for all.
As everyone in the world would now have access to the same financial system it would unlock opportunities for all no matter where in the world they’re located and how much money they would have available to them. Thanks to global exchange rates someone in Africa could invest within a USA asset and receive their yield in their local currency. All previous middlemen and compliance structures would then be fully automated into the system itself making it viable for these transactions to now occur.
Looking at concepts such as current market exchange’s use of payment of order flow, these would go away as all participants of the network are attached to the same system regardless of which user interface (brand) someone would use to make transactions. Whether Robinhood, Fidelity or a startup in Africa, they’d all be using the same system to transact exchanges.
Thanks to all yielding activity now being a ratio of someone’s ownership, it makes investing a low friction event that all can participate in. All would be incentivized to have their money making money somewhere encouraging the moving of assets and thereby increasing economic activity.
The question isn’t around whether or not blockchain is here to stay, it’s around how quickly we can start to bring to life it’s amazing benefits. By choosing either one or a few winning technologies now, we can start focusing on bringing to life these changes sooner. As we wait to pick winners the space only becomes more complex to regulate and moves away from the truly great aspect of the technology, making a more accessible and fair system for all.