Baby Steps: US Wrapping Its Head Around Idea of ‘FedCoin’ Cryptocurrency
AP Photo / Richard DrewBusiness22:13 06.05.2018(updated 22:24 06.05.2018) Get short URL
Can a technology initially intended as a way to circumvent the existing financial architecture be adopted by the market’s most powerful player?
A former Federal Reserve governor who was on Trump’s short list to lead the Fed prior to the appointment of Jerome Powell has asserted that a US-backed cryptocurrency is not only doable, but advisable. Can the potentially earthshaking financial move be far off?
Kevin Warsh, governor at the Fed between 2006-2011, suggested that
cryptocurrency and blockchain technology are arguably the future of money, and noted that the world’s biggests financial institutions are headed toward a level of participation that will alter the playing field.
Motivated by a deep mistrust of the banks that control the world’s money supply, evangelists of Bitcoin and other cryptocurrencies have long advocated the technology’s use as a way to sidestep the gatekeepers and take control of one’s own cash flow. Now Warsh and many of the powerful who operate at his level are suggesting that a US-generated cryptocurrency — a so-called FedCoin — is an idea whose time has come.
“Most central banks have a view that these crypto-assets are clever, like guys in the garage did it and it’s kind of cool, or risky,” said Warsh, cited by Nytimes.com.
“Not that it would supplant and replace cash,” he added.
But a US-backed FedCoin would not necessarily be subject to fraud and other as-yet-uninvented financial shell games, and would, he asserts, be somewhat more stable than today’s wildly fluctuating cryptocash markets.
Stability is the key, Warsh suggests, “to think about the Fed creating FedCoin, where we would bring legal activities into a digital coin.”
“It would be a pretty effective way when the next crisis happens for us to maybe conduct monetary policy,” he added.
Blockchain technology, with its decentralized record keeping of transactions, could be used in financial networks run by the Fed, which often transfer billions of dollars at one whack.
“It strikes me that a central bank digital currency might have a role to play there,” Warsh remarked Thursday.
The newly-appointed Fed chairman, Jerome Powell, in comments made during his late 2017 Senate confirmation hearing, also noted the potential usefulness of cryptocurrencies.
“We actually look at blockchain as something that may have significant applications in the wholesale payments part of the economy,” Powell stated.
But while central banking networks do not necessarily consider cryptocurrency’s utility for fraud, tax evasion and money laundering to be a big selling point, there is overlap.
“Congress gave the Fed a monopoly over money,” Warsh noted, according to Nytimes.com.
“If the next generation of cryptocurrencies look more like money and less like gold — and have less volatility associated with them so they would be not just a speculative asset but could be a reliable unit of account — as a purely defensive matter I wouldn’t want somebody to take that monopoly from me,” he warned.
Another way to interpret that remark might be to observe that the Fed is advised to stake its claim in cryptocurrency technology V2.0, potentially controlling and regulating the 21st century’s Wild West of money.