Bitcoin’s core values are beginning to make sense to the Federal Reserve System, it seems, therefore there is no need to launch a national cryptocurrency for the United States.
Last month, Christine Lagarde, the IMF Director, talked about the gains which Central Bank Digital Currencies (CBDCs) would bring if implemented. She pointed out that the currencies could reduce poverty, improve security, provide greater privacy and accelerate financial inclusion. She also mentioned our cashless society and referred to digital assets as a “contender.”
This brought a level of comfort to cryptocurrency enthusiasts. It appeared that conventional financial institutions were finally embracing cryptocurrency and what it represents, which includes user privacy, reduced cost of payment and streamlined efficiencies.
Cryptocurrency Might Not Be So Catchy After all
At the inclusion of Bitcoin into the mainstream, when it was doing so well last year, the currency was hailed by many as the future of money. Even Kevin Walsh, the Federal Reserve former governor who was a candidate for the office of Chairman, supported cryptocurrency and promised to work towards the creation of Fedcoin in the event of his election.
He believes that the Fedcoin would provide more transparency and efficiency and enable the Fed to access financial tools like negative interest rates and a whole lot more. But in the end, the Fed, banks or national governments could care less about any of these.
The Volatility of Cryptocurrency Cannot Be Overlooked
Lael Brainard, a governor at the Federal Reserve Board, flayed the whole idea of CBDC at San Francisco Decoding Digital Currency Conference. Though she acknowledged the power of the blockchain technology, she also pointed out that the volatile nature of cryptocurrency and its susceptibility to money laundering and hacks made it unfitting to be used as a store of value or a currency unit.
Therefore, even though the Fed could transform the US dollar into a cryptocurrency, the change would be pointless because existing institutions would be affected, and not in a good way.
Can A Compromise Be Reached?
Even though looking at cryptocurrency through the lens of a centralized system may lead to nowhere, the truth is that the right application of cryptocurrency in national projects could result in something wonderful. Peter Todd, a cryptographer, said the following:
“It’s fashionable to criticise all blockchain stuff when applied to centralized systems as nonsense, because most of the solutions peddled have been nonsense. But the truth is somewhere in between.”
It's fashionable to criticise all blockchain stuff when applied to centralized systems as nonsense, because most of the solutions peddled have been nonsense. But the truth is somewhere in between.
Blockchain in the context of the fed is just an open-data policy. That's good.
— Peter Todd (@peterktodd) December 28, 2018
This means that, if sought for, a compromise might be found.