Close the Exits

Kerby Anderson

One way to predict what our government is going to do in the future is to look at what other governments are doing in the present. Look at Argentina. The official annual inflation rate is 104%, though the actual inflation rate may be even higher. The government of Argentina has now banned operations that allow bank clients to purchase cryptocurrencies. This announcement came just days after two large institutions announced they would let clients buy bitcoin.

This looks like an attempt to “close the exits” because of a fear that citizens would be looking for ways to preserve what little wealth they have. I cannot blame the citizens for wanting to find ways to prevent the money they were able to set aside each year from losing more than half of its value every year. You would want your savings in the US dollar or bitcoin rather than in the Argentine peso. And I understand why the government is trying to prevent a flight to safer investments.

We have seen the same reaction to possible capital flight in China. The government has instituted capital controls that restrict domestic households from investing abroad, and foreign investors are restricted from accessing financial markets. Closing the financial exits keeps funds within China’s borders.

We also see the possibility in Europe. Christine Lagarde is the president of the European Central Bank. She has called for regulation of bitcoin. In fact, she believes that the regulation “has to be applied and agreed upon … at a global level because if there is an escape that escape will be used.” Again, governments want to “close the exits.”

At the same time, governments are exploring the development of central bank digital currencies. These CBDCs will provide government leaders with more control over the economy and provide them with the possibility of more control over us. That’s why they need to close the exits.