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It seems as if the Federal Reserve really understands the core values of Bitcoin and that launching a national cryptocurrency is pointless.
Director of the IMF Christine Lagarde spoke out about the benefits of central bank digital currencies (CBDCs) this November. She said that they could improve security and accelerate financial inclusion. She is also a reference to cryptocurrencies as a "contender" in our cashless society.
And many crypto enthusiasts took heart. It seemed that finally, aging institutions were coming to the technology and understanding its value. After all, cryptocurrencies can already achieve most of the things that Lagarde suggested. They can lower the cost of international remittances, streamline efficiencies, and protect the identity of their users.
But It's Not Interesting in The Federal Reserve
At the height of bitcoin's price explosion last year, when crypto entered the mainstream, many people called it the future of money. In fact, Kevin Walsh, a former governor at the Federal Reserve, was said to be chairman, said that if he were elected he would be allocated to the creation of Fedcoin-a national cryptocurrency.
Why? Because it could improve transparency, increase efficiency, and allow the Fed to access negative interest rates and other financial tools.
But when you get the nitty gritty, none of these things are of interest to the Fed, the banks, or national governments.
Sorry, No National Cryptocurrency for Now
The IMF is famous for imposing loans on struggling countries and crippling them with exorbitant interest rates. So it seems unlikely that such an institution would race to adopt technology that would unchain the downtrodden from their shackles.
Moreover, researchers at the St. Louis Fed, Fabian Schar and Aleksander Berentsen, noted that a central bank "could easily" create its own crypto:
However, the key characteristics of cryptocurrencies are a red flag for central banks.
The red flags, they argued, were that law enforcers must be able to eliminate the frauds and money launderers.
They fail to mention that some two-thirds of all $ 100 US dollar bills are outside of the United States and that no one has any idea who is using them.
Federica or any other national cryptocurrency:
Once you have a central bank and remove the "permissionless" network, you can not leave the cryptocurrency you started with.
In fact, a centralized cryptocurrency is not really a 'cryptocurrency' at all. It's just centralized electronic money, which they have already got bucketloads of.
The two St. Louis branch of the Federal Reserve researchers further pointed out that this kind of centralized electronic money does not even need to blockchain to work, in fact:
The technology for issuing virtual money in a centralized way existed long before the invention of the blockchain.
The Old Money Laundering Argument Again
A Federal Reserve Board governor Lael Brainard tore the concept of CBDCs apart at the San Francisco's Decoding Digital Currency Conference. While praising blockchain's innovation, it went as a unit of currency or store of value and that was susceptible to hacks and money laundering.
She repeated Schar and Berentsen's red flag of identity management and noted as a national digital currency
So, while it is true that the Fed could digitize the US dollar and turn it into a cryptocurrency, it would only work against the interests of existing institutions.
Could There Be a Middle Ground?
In fact, it seems to be missing the point, that does not make it crypto entirely useless for national purposes. Neither does it make fiat any more suitable. Cryptographer Peter Todd noted that:
It's all about the blockchain stuff when applied to centralized systems as nonsense. But the truth is somewhere in between.
It's all about the blockchain stuff when applied to centralized systems as nonsense. But the truth is somewhere in between.
It is just an open-data policy. That's good.
– Peter Todd (@peterktodd) December 28, 2018
Which means there may be some middle ground. But perhaps the main takeaway is this:
That the Federal Reserve wants to be with the cryptocurrency as the Vatican fails to embrace gay marriage or abortion. If you want to further comparison, ask Jamie Dimon about bitcoin is like asking taxi driver about Uber.
"Asking Jamie Dimon about Bitcoin is like asking taxi driver what he thinks about Uber" –@ Dan_Jeffries1 https://t.co/TIp8XfjmPP
– Erik Voorhees (@ErikVoorhees) December 27, 2018
It's still a young technology, and we've got a long way to go. So for now, it's really no shocker that the old institutions are not diving in to expose their ills and remove their controls.
Do you agree with the Fed's position on national cryptocurrencies? Share below!
Images courtesy of Shutterstock
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