Weekly Digest: Europe Moves Toward a Digital Currency

Welcome to your Sunday digest…my weekly breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

You may remember from last week’s mailing that I was planning to bring you this edition from the beautiful Mediterranean island of Malta.  

Well, in this age of COVID, the best laid plans of mice and men—not to mention travelers—often go awry.  

Earlier this week, just a few days before I was due to travel, Malta abruptly changed its entry requirements from a negative PCR test to a vaccination certificate.  

I am fully vaccinated as of this past Monday. However, the certification isn’t valid until 14 days after vaccination. So, I was forced to postpone my trip at the last minute.  

I’m currently in the process of rearranging my visit for the end of the month, when my certificate is valid.  

But I thought I’d share this update first as a friendly PSA: Travel rules are changing day to day in this COVID-afflicted world, so if you have a trip coming up, make sure your vaccination certificate is valid and check your destination’s entry requirements…up to and including your day of travel. You never know what might have changed. 

With that out of the way, let’s get to our first update this week: The European Central Bank is taking the initial steps toward a digital euro. 

In yesterday’s Field Notes mailing, I wrote to you about central bank digital currencies, or CBDCs.  

These are forthcoming versions of our sovereign currencies—the dollar, the euro, the Chinese yuan, etc.—that will exist digitally on the blockchain, just like bitcoin. 

When they are rolled out in the years to come, every one of us will likely have a bank account at our central bank, so in the case of the U.S. that’ll be the Federal Reserve. Our wages may be deposited in this account, our tax rebates and other government payments will likely go there, and we’ll probably be able to borrow money into that account directly from the Fed.  

Basically, these accounts, and the digital currencies in them, will usurp the traditional, private bank-driven financial system.  

Why would governments want this?  

Well, since the money we use will be digital and on the blockchain, central banks will be able to see and record every single financial transaction we ever make. And they’ll be able to control the amount of money in the economy with far, far greater precision. 

I’ll do a Field Notes mailing soon to give you a full outline of what I believe this financial future will look like.  

But in the meantime, in case there’s any lingering doubt that this reality will come to pass, this week the European Central Bank—the central bank for the 19 countries that use the euro—announced a two-year research program to look into “key issues regarding design and distribution” of a digital euro. 

The ECB said it aims to begin developing the digital euro once this two-year project is complete, and that the development process is expected to take three years…meaning there could be a eurozone-wide digital currency by 2026. 

Digital sovereign currencies are coming, whether we want them or not. 

*** 

Next up this week, the U.K. has a new $33 billion financial giant. 

There are two big factors encouraging the ECB to move forward with its digital euro (beyond the obvious financial control this instrument would offer).  

First, China has made significant progress on developing the digital yuan…having already completed public trials around the country. The ECB doesn’t want to be left behind. 

Second, Europeans have shown strong willingness to adopt new digital financial services…as evidenced by the success of new U.K. financial services giant, Revolut. 

If you haven’t heard of it, Revolut is an app that allows you to operate in multiple currencies easily and cheaply right on your smartphone. 

Basically, you have a Revolut app on your phone and a Revolut debit card. Using the app, you can top up your card from your main bank account and use it as you would any other debit card. This top-up feature is great for financial security, since you can keep a minimal amount of cash on your card in case it’s ever stolen.  

Then, when you’re traveling, you can convert the cash on your card to another currency instantly, for very low fees. So, your Revolut card is functionally like a local debit card in whatever country you’re visiting. 

More recently, Revolut has also expanded into other financial services and now allows users to buy a limited selection of stocks and cryptos through its app. 

Revolut has been a huge success since launching in Europe. As a frequent traveler, I use my Revolut card everywhere I alight to convert dollars into everything from euros and Czech crowns, to Turkish lira and Russian rubles. A British author even pays me in British pounds directly onto my Revolut card to edit and rewrite his screenplays.  

Frankly, it’s the best travel/digital nomad-focused debit card on the market. A significant proportion of the people I know in Europe use it. (Revolut is also available in the U.S. now.) 

Little surprise, then, that just this past week Revolut attracted new funding from leading investors that values the business at a massive $33 billion. Revolut plans to use the funding to expand its U.S. operations and enter new markets like India. 

That valuation makes U.K.-based Revolut the most valuable financial technology company in Britain. In fact, that makes it larger even than NatWest, one of the U.K.’s traditional big four retail banks.  

Given that Revolut was only granted its banking licenses in the U.K. and eurozone in 2017 and 2018 respectively, the company’s rise shows how quickly new digital-based services can sweep across the financial landscape. 

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Finally this week, governments are eyeing tax increases on mining firms as commodity prices boom. 

You may recall that in the May issue of our monthly Global Intelligence Letter, I shared my prediction that we’re entering a commodity super-cycle…a period in which commodity prices surge higher over the longer term.  

In the few months since, we’ve already seen this trend taking shape. Some of the biggest beneficiaries have been industrial metals like iron ore and copper, which have seen record all-time highs in 2021. 

Well, this fact hasn’t escaped the attentions of governments in emerging markets. 

In copper-rich Peru, for instance, Pedro Castillo, who is thought to have won a very narrow victory in the recent presidential election, has vowed to increase taxes on miners.  

It’s a similar story in neighboring Chile, which accounts for about a third of global copper production. There, lawmakers are debating big increases to mining royalties. 

Even in the States, a new tax on gold and silver mines in Nevada came into effect on July 1.  

Overall, this is bad news for average consumers. 

All these additional taxes on miners will discourage investment in expanding production or searching for new mineral sources. This, in turn, will ensure commodity prices remain elevated, which means higher prices for consumer products that use these materials.  

That’s why I advise you to consider the commodity super-cycle play in our May issue. That investment will help you profit from, rather than suffer from, this trend. 

With that, I’ll bid you farewell this week. Many thanks for reading. And if you have any feedback or questions, please feel free to contact me through the contact form on the Global Intelligence website here.