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Hodl, IMF Now Declaring War on Cash After Negative Interest Rate Proposals

IMF Bitcoin

Cryptocurrency enthusiasts should hodl their coin reserves as the IMF declares war on cash following negative interest rate proposals. If anything, this is the best time for people to turn to cryptocurrencies to help preserve their wealth.

Time To Hodl Your Cryptocurrencies

For people who are already in cryptocurrencies, this is the best time to preserve wealth in digital currencies, not fiat if reports from Weiss Ratings is anything to go by. Meanwhile, no-coiners should be urged to ramp up, even if it means owning a percentage of a coin simply because saving is no longer a safe, more so if we draw events from devastated Venezuela.

According Weiss, the International Monetary Fund did declare war on cash following proposals to implement negative interest rates. In their tweet, Weiss Ratings says:

“The #IMF is the latest financial institution to declare war on cash. If they succeed, your fiat savings will go up in a puff of zero interest rate policies. This is why #crypto. #thisIsWhyWeHODL”

Negative interest functions in such a way central banks reduce interest rates with the aim of boosting economic growth. This move could see central banks reduce interest rates to negative figures. Undoubtedly, it implies that people would lose money through inflation as the government resort to stimulus in order to spur consumption and investment in an otherwise frail economy. By printing more to increase lending, boost demand, and stimulate the economy, the idea is to get people to spend instead of saving as this would help boost economies by decreasing interest rates but at the expense of high inflation.

Read: Ripple Co-Founder joining IMF Panel to Discuss Latest Financial Tech Innovations

The IMF, in a blog post earlier this year, suggests that one way to make negative interest rate work is to phase out cash. However, this effort could be arduous as paper money continues to be an integral part of payment processes in most countries.

Cash And Digital Currencies Could Work Together

The proposal by the IMF is for central banks to split their monetary base into two local currencies, cash and digital currencies (e-money). The digital currencies would be issued electronically and would have the policy rate of interest. Meanwhile, the paper cash would have an exchange rate against the digital currency.

There have been interest from some central banks across the world in developing digital currencies known as CBDC. The Central Bank Issued Digital Currencies (CBDC) would not work like cryptocurrencies. Instead, they would work like regular fiat currencies since they would be in the control of the central banks.

Reports over the past few months suggest that Sweden’s central bank is currently working on developing e-krona, the digital version of its local currency, the Krona. There are other countries that are exploiting similar moves, but no one has put together one yet.

Also Read: Why Ripple (XRP) Fits The Bill Of What The IMF Would Recommend To Global Central Banks

Regardless, saving your funds in cryptocurrencies seems like the best move at the moment. After all, the primary goal of Bitcoin was to take away financial control from the government and hand it over to the people. Specifically, Satoshi wants to avoid the calamities that took place following the 2008 global financial crisis.

If the negative interest rate gets a nod and countries follow the IMF lead, then it would significantly affect a large swathe of world’s population already struggling with hyperinflation or deflation. Therefore, to protect your funds from bank negative rate charges, resorting to cryptocurrencies is no brainer. Encouragingly, indicators show that Bitcoin and other cryptos are gradually gaining traction, becoming an excellent store of value as data from Venezuela and Iran shows.

The post Hodl, IMF Now Declaring War on Cash After Negative Interest Rate Proposals appeared first on Ethereum World News.

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IMF Spring Meetings: Digital Money Is Imminent, But No Decentralization in Sight

As the IMF and the bosses of central banks gather to talk digital money, concerns of stability and institutional trust dominate the discussion.

The custodians of global financial order have been prominent in crypto news recently. The weekend kicked off with the announcement of the International Monetary Fund (IMF) joining forces with the World Bank to launch a private blockchain coupled with a “quasi-cryptocurrency” for training purposes, then continued with the Spring Meetings of the two organizations’ Boards of Governors in Washington, D.C., which ran throughout the whole week.

Although it would be an overstatement to claim that distributed ledgers were particularly conspicuous on the forum’s overall agenda, the program included a series of fintech workshops, as well as at least a couple of major talks relevant to grasping where global regulators stand on some issues pertinent to crypto and blockchain applications. Situated in the context of the IMF’s previous statements and actions, the ideas expressed at the meetings can update our understanding of the intellectual currents that shape how international financial institutions envision the future of blockchain technology.

Spring Meetings

Christine Lagarde, the IMF’s managing director, moderated the seminar entitled “Money and Payments in the Digital Age” that featured Benoît Cœuré, a board member of the European Central Bank (ECB); Central Bank of Kenya Governor Patrick Njoroge; JPMorgan Chase Chief Financial Officer Sarah Youngwood; and Jeremy Allaire, co-founder and CEO of crypto finance firm Circle. Predictably, speakers who represented established financial institutions and the fintech entrepreneur offered vastly different opinions on whether the digital payments model is superior.

While JPMorgan Chase’s Youngwood touted the bank’s new digital coin that is used for instantaneous settlement of wholesale payments, the Central Bank of Kenya’s chief talked about mobile-based payment service M-Pesa and ECB’s Cœuré introduced TIPS — a cost-efficient European service for the settlement of instant payments. Allaire, on his part, painted a future marked by a “fundamental redesign of how civic societies work,” in which economic activity is fully automated, effectively eliminating the notion of payments as we now think of them. Notably, he argued that not only the decentralized forms of money underlain by permissionless public ledgers would benefit from the internet-like open design, but sovereign digital money would as well.

Cœuré — the same ECB official who once had reportedly called bitcoin “the evil spawn of the financial crisis” — expressed confidence that central bank-issued digital money would be prominent in the financial system of the future, but warned that “decentralization, if not properly managed, can introduce fragility” to the system.

International Monetary Fund Managing Director Christine Lagarde along with Jeremy Allaire, Benoit Coeure, Patrick Njoroge and Sarah Youngwood talk about Money and Payments in the Digital Age at the IMF Headquarters during the 2019 IMF/World Bank Spring Meetings on April 10, 2019 in Washington, D.C. IMF Staff Photograph/Stephen Jaffe

International Monetary Fund Managing Director Christine Lagarde along with Jeremy Allaire, Benoit Coeure, Patrick Njoroge and Sarah Youngwood talk about Money and Payments in the Digital Age at the IMF Headquarters during the 2019 IMF/World Bank Spring Meetings on April 10, 2019 in Washington, D.C. IMF Staff Photograph/Stephen Jaffe

An overarching motif that loomed large in almost every speaker’s account was trust. However, if Circle’s Allaire was talking about trust in open networks based on public infrastructure for money, in which clearance and settlement are decentralized, other panelists obviously meant a different kind of trust — i.e., trust in the incumbent financial institutions that has to be maintained and preserved.

In an interview after the panel, Madame Lagarde made a nod to blockchain “disruptors,” who are “clearly shaking the system” and “changing business models of commercial banks.” Yet, she sounded much more in line with Cœuré than with Allaire when she remarked that she remains concerned about the trust and stability of the system, and that the IMF doesn’t want “innovation that would threaten stability.”

Interestingly, the IMF head noted, apparently in response to Allaire’s mention that Facebook was expected to roll out its own coin soon, that the organization is watching “data collectors” entering the financial space and is ready to regulate. The remark could be relevant to social services with payment ambitions beyond just Facebook, particularly the Telegram Open Network.

“New Economy Talk: CBDC: Should Central Banks Issue Digital Currencies?” was another event among the Spring Meetings germane to the domain of crypto. Moderated by Tommaso Mancini-Griffoli — the deputy division chief in the IMF’s Money and Capital Markets Department — the event had Deputy Governor Cecilia Skingsley of the Swedish Riksbank and Bank of Canada’s Deputy Governor Timothy Lane pondering the prospects of digitizing sovereign money.

In this discussion, the word “cryptocurrency” was mentioned just once, yet in a rather revealing context. When talking about the possible design and functionality of central bank digital currencies (CBDCs), Riksbank’s Skingsley contended that such an instrument will have to be highly functional and the best at fulfilling citizens’ needs — otherwise, “other versions of money could come in, perhaps cryptocurrency,” implying that government-issued digital money would stand in direct competition with its decentralized counterpart.

Lane expressed a number of concerns over the potential tokenization of central banks’ liabilities, including systemic risks like facilitating bank runs and displacing financial intermediation. He also pointed out that, with the existing cryptocurrencies, “anonymity is a big issue” and any digital instrument that Canada would develop will ensure that law enforcement has access to transacting parties’ data, if needed. By and large, the discussion proceeded along the lines of designing a convenient digital reincarnation of fiat money rather than envisioning paradigmatic changes in the nature of state-issued money that a crypto-libertarian would welcome.

Insights from Finance and Development

The ideas on digital money that most of the financial world’s notables expressed on the floor of the IMF-hosted forum largely resonate with those articulated in the June 2018 issue of the organization’s quarterly magazine, “Finance and Development,” dedicated almost entirely to the future of currency, and heavily focused on the threats and promises of blockchain. This issue — which, at the time of publication, did not make too much of a splash in the crypto community — is nevertheless a remarkable document that captures some themes that seem to remain influential with many financial bosses up to this day.

Title page of the June 2018 issue of Finance and Development, a magazine released and published by the International Monetary Fund

Title page of the June 2018 issue of Finance and Development, a magazine released and published by the International Monetary Fund

Some of the points that the authors raise are hardly shocking. Martin Mühleisen, director of the IMF’s Strategy, Policy and Review Departmentacknowledges blockchain’s capacity to revolutionize the world of finance, but reiterates common concerns over its potential to facilitate illicit activities. Andreas Adriano, a senior communications officer in the IMF’s Communications Departmentapplies Ken Galbraith’s taxonomy of financial bubbles to what he calls “crypto euphoria,” observing that most of the common features of historic financial euphorias are also visible in the irrational exuberance surrounding crypto assets.

In their primer on cryptocurrencies, economist Antoine Bouveret and the assistant director of the IMF’s Strategy, Policy and Review Department, Vikram Haksarpoint out that such assets are often costly to produce and that “decentralized issuance implies that there is no entity backing the asset.” They also mention that crypto assets might pose a threat to central banks’ ability to conduct monetary policy by weakening their centralized control over the money supply.

Perhaps the most forceful, in-depth and also the most unsettling analysis presented in the issue is the one penned by Dong He, deputy director of the IMF’s Monetary and Capital Markets Department. He affirms that crypto assets challenge the model of state-issued money and the dominant role of central banks, thus presenting direct competition to fiat money — a point that Riksbank’s Skingsley shared the other day. Further, he admits that the rise of cryptocurrencies might foreshadow a paradigmatic shift from account-based to token-based payment systems. He also contends that a situation in which crypto assets come to define the unit of account would mean irrelevance of central bank’s monetary policy.

His solution? Make fiat money — digital or not — a more attractive unit of account and settlement tool, naturally. That is also something we’ve heard a lot throughout the Spring Meetings sessions. But he also adds this to his recipe:

“Government authorities should regulate the use of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage crypto assets may derive from lighter regulation.”

In other words, the analyst suggests that regulation should be there not to protect consumers from fraud — or to stifle the financing of terrorism — but rather, it is needed to protect the dominance of the incumbent financial instruments and institutions. That is a step further from the usual way of rationalizing regulatory pressure on crypto, if at lease a more honest one.

Arguably the most refreshing article of the June issue of “Finance and Development” was written by a historian. Princeton professor Harold James reminds us that “money was almost always an expression of sovereignty,” which is a concise explanation of why crypto enthusiasts shouldn’t expect central banks to cede any of their power to open, decentralized financial systems. James also offers an elegant take on what he calls a “transformational shift in the perception of fundamental value.” He puts it that, in the past, value was created when humans applied labor to nature. In the near future — and bitcoin appears to be a harbinger of this change — value may arise from the application of nonhuman intelligence to stored energy.

Words and deeds

Whenever she talks about blockchain, Lagarde almost invariably brings up this ever-recurring maxim: Financial authorities should go about distributed ledger technology with caution, yet make sure that regulation does not stifle innovation. But what does this mean in practice? It seems that, feeling the weight of the responsibility for global financial stability on its shoulders, the IMF is not eager to rush the advent of a decentralized monetary system. Experiments will be tightly controlled, in a sandbox style; jurisdictions that try to shoot ahead too enthusiastically, like the Marshall Islands and Malta, will be reminded that they better simmer down. Stability and trust should remain paramount — and that means stability and trust in the incumbent institutions.

As is visible in the recent discussions and the analysts’ prior work, central bankers globally are well aware of the threat that open blockchains could pose in the near future to the monetary system that they are in charge of. The next decade will almost definitely see the emergence of CBDCs in many jurisdictions, but it is unlikely that these financial vehicles will be fundamentally different from a digitized version of the existing, centrally issued and controlled fiat money. The incumbents have resources to make digital fiat appealing to consumers and the regulatory power to limit competition from potential decentralized alternatives, so it may take a while before blockchain-powered, peer-to-peer financial networks have a chance to give central banks a run for their money.

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Bank of Thailand Develops Cryptocurrency Pilot Based on R3 Technology

The Bank of Thailand (BoT) – the country’s central bank has announced that it has made significant progress on its cryptocurrency pilot program. The country’s apex bank’s planned completion date for phase one of the project is Q1 2019.

Project Inthanon

In a press release published on Tuesday (August 21, 2018), the BoT said that it had secured partnerships with eight Thai-based financial institutions. The purpose of these collaborative efforts, according to the bank is to facilitate the creation of Project Inthanon – a central bank digital currency (CBDC). The plan is to have the CBDC run on R3’s proprietary distributed ledger technology (DLT) platform – Corda.

According to the press release:

The outcome and insights from Project Inthanon will contribute to the design of Thailand’s future financial market infrastructure. This is in line with similar projects embarked upon by other central banks such as the Bank of Canada, the Hong Kong Monetary Authority and the Monetary Authority of Singapore. In addition to Project Inthanon, the BOT is conducting a DLT proof of concept for scripless government savings bond sale to improve operational efficiency.

The BoT plans to conclude, in tandem with its partners, the design, development, and testing of a proof-of-concept prototype for Project Inthanon. This prototype will facilitate domestic wholesale fund transfer via the CBDC. Most of the preliminary testing activities will focus on liquidity saving mechanisms, as well as risk management strategies. Phase one should be completed before the end of March 2019. Upon completion, the BoT plans to publish a detailed summary of the project.

Cryptocurrency in Thailand

While the BoT continues in its push to develop robust blockchain-based financial solutions, the cryptocurrency industry in the country continues to feel the impact of a few sweeping developments in the past few months. Beginning in June, the government released a detailed framework for cryptocurrency operations in the country covering both trading and initial coin offerings (ICOs).

The Thailand Securities and Exchange Commission (SEC) also approved seven cryptocurrencies while setting financial benchmarks for crypto exchanges and brokers as well as projects looking to carry out ICOs in the country. Earlier in August, the Commission also approved seven cryptocurrency exchanges.

What do you think about project Inthanon? Will the Thai Central Bank launch a state-issued digital currency? Keep the conversation going in the comment section below.


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Central Bank Crypto Could Bring Economic Gains: Bank of Canada Paper

Central bank-issued cryptocurrency can potentially bring economic welfare gains for Canada and the U.S., according to a central bank researcher.

In a working paper published Thursday, the Bank of Canada’s S. Mohammad R. Davoodalhosseini states that introducing a central bank digital currency (CBDC) “can lead to an increase of up to 0.64 percent in consumption for Canada and up to 1.6 percent for the US, compared with their respective economies if only cash is used.”

At the moment, Davoodalhosseini says, a key question to the “many” central banks currently mulling the option of issuing a CBDC is whether cash and a digital form of fiat currency should co-exist, and if so, how to maintain an “optimal” monetary policy.

Based on detailed modeling and mathematical calculations, the researcher argues in the paper that a country’s economic welfare – at least for Canada and the U.S. – might be better off by substituting cash with a CBDC, provided implementation is not extremely costly.

He wrote:

“Having both cash and CBDC available to agents (consumers) sometimes results in lower welfare than in cases where only cash or only CBDC is available. This fact suggests that removing cash from circulation may be a welfare-enhancing policy if the motivation to introduce CBDC is to improve monetary policy effectiveness.”

The paper further states that, by introducing a CBDC, central banks could have a higher level of flexibility in adjusting current monetary policy.

“This is because the central bank can monitor agents’ portfolios of CBDC and can cross-subsidize between different types of agents, but these actions are not possible if agents use cash,” it says.

The paper’s quantitative approach follows a previous December 2017 effort by other researchers from Canada’s central bank to gauge the value of offering a CBDC over cash – work that took a more qualitative look at the pros and cons.

CoinDesk reported at the time that the researchers argued that the potential benefits of a CBDC may vary between developed and developing economies.

Bank of Canada image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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US Congressman Calls for Ban on Crypto Buying and Mining

A U.S. lawmaker has called for a blanket ban on cryptocurrency buying.

Congressman Brad Sherman is no stranger to controversial statements on the subject – back in March he called cryptocurrencies “a crock” – and during the Wednesday hearing of a subcommittee for the House of Representatives Financial Services Committee, he went so far as to advocate keeping Americans out of the market entirely.

“We should prohibit U.S. persons from buying or mining cryptocurrencies,” the California Democrat declared. He added that, beyond cryptocurrencies being potentially used as a form of money in the future, it can currently be used by tax evaders and rogue states seeking to bypass U.S. sanctions.

One of the panelists, Norbert Michel, director for the Center for Data Analysis at the Heritage Foundation, pushed back against the idea that criminal use should define cryptocurrencies as a whole.

Michel told the subcommittee:

“Yes it is true that criminals have used bitcoin, but it’s also true that criminals have used airplanes, computers and automobiles. We shouldn’t criminalize any of those instruments simply because criminals used them.”

“Those components I believe are the main barriers to widespread adoption in the U.S,” he added.

No love for CBDCs

Though much of the hearing revolved around general monetary policy and history, the crypto-specific portions revealed a general opposition to the idea of a central bank digital currency (CBDC).

To quickly recap: a number of central banks around the world have been investigating the idea of using some of the technology concepts behind bitcoin and other cryptocurrencies as part of new, wholly digital money systems. The idea is that the tech can boost transparency and efficiency.

But some of those looking into the subject have warned that it could amplify the risk of bank runs, and several institutions have sworn off the idea entirely following their research.

Alex Pollock, a senior fellow at the R Street Institute, blasted the concept during Wednesday’s hearing, declaring it “a terrible idea – one of the worst financial ideas of recent times.”

Other committee members couldn’t help but agree that the idea, at the very least, raised more fundamental questions about how blockchain and cryptocurrencies actually work.

Congressman Bill Foster asked about blockchain immutability, saying “the promise of blockchain is a non-falsifiable ledger … [what] remains an unsolved problem in the digital world is how do you authenticate yourself?”

Payments boon

On a more positive note, Dr. Eswar Prasad, senior professor of Trade Policy at Cornell University, argued that the existence of cryptocurrencies had the potential to impact the financial services system, particularly the payments system, in positive ways.

According to Prasad, cryptocurrencies could “make transactions much easier … and bring down the cost,” but the benefits are limited at the moment.

Michel himself noted:

“It is certainly difficult to imagine a cryptocurrency replacing the U.S. dollar as long as the Federal Reserve acts as a moderately good steward of the national currency, but it is for this very reason that Congress should eliminate barriers that impede people from using their preferred medium of exchange.”

Ultimately, the hearing was cut short in order to make way for a House vote.

However, just prior to dispersing the attendees, chairman Andy Barr noted that cryptocurrencies will “continue to have a greater and greater impact on our financial system,” making it a topic the committee would likely have to “revisit” once again.

You can follow CoinDesk’s live coverage of the hearing on Twitter.

Image via House Financial Services Committee 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Lawmakers to Discuss If Crypto Is 'The Future of Money' Next Week

Cryptocurrencies will take center stage once again on Capitol Hill next week.

The U.S. House of Representatives Financial Services Committee announced Thursday that it would host a hearing titled “The Future of Money: Digital Currency” on Wednesday, July 18.

Though the Committee, headed by Chairman Jeb Hensarling, has yet to announce a full list of participating witnesses, CoinDesk confirmed that the event will be livestreamed on its website.

Past hearings by the Committee have seen lawmakers discuss cryptocurrencies through the lenses of terrorism financing and fraudulent investments, as previously reported by CoinDesk.

That being said, it seems the topic of next week’s hearing is more geared towards debating the utility of cryptocurrencies as a form of money.

It is a timely topic in light of an increasing interest in cryptocurrencies as a potentially useful monetary tool for governments and more specifically, central banks, around the world. In March, the Bank of International Settlements, what some consider as the central bank to central banks, argued cryptocurrencies backed by central banks could in fact fuel faster bank runs during periods of financial instability.

Other countries including Canada, Finland and South Korea have weighed in on the matter, though responses have been mixed with trepidation.

Capitol Hill flags image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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PBoC Filings Reveal Big Picture for Planned Digital Currency

The Digital Currency Research Lab at the People’s Bank of China has filed more than 40 patent applications so far – all as part of an aim to create a digital currency combining the core features of cryptocurrency and the existing monetary system.

Data from China’s State Intellectual Property Office (SIPO) revealed two new patent applications on Friday, pushing the total number submitted by the lab to 41 over the 12 months since its launch.

Each of the 41 patent applications focuses on a certain aspect of a digital currency system, and, when combined, would create a technology that issues a digital currency, as well as provides a wallet that stores and transacts the asset in an “end-to-end” fashion.

For instance, the most recently revealed patent application explains how the envisioned digital wallet would allow users to check any transactions made through the service, while earlier documents offered details on how the wallet can facilitate transactions.

The ultimate goal, according to PBoC’s patents, is to “break the silo between blockchain-based cryptocurrency and the existing monetary system” so that the digital currency can sport cryptocurrency-like features, while being widely used in the existing financial structure.

Last week’s patents further explain that the envisioned wallet would not be limited, like a typical cryptocurrency wallet, to merely storing the private key to a certain asset. Nor would it be like another mobile payment service that only reflects a number on an application’s front-end interface without users actually holding the assets in a peer-to-peer manner.

Instead, the patents indicates the wallet would store a digital currency issued by the central bank or any authorized central entity that is encrypted like a cryptocurrency with private keys, offers multi-signature security and is held by users in a decentralized way.

The research lab said in  one of the documents that it believes it is building a mechanism that makes a crypto-featured digital currency more applicable in the financial world.

The hybrid approach is also in line with opinions shared by the PBoC’s vice governor Fan Yifei and Yao Qian, the head of the research lab, who have both argued for a balance between the two polars of centralization and decentralization.

Overall, the patent applications filed so far signal the continuous efforts made by China’s central bank to develop its own central bank digital currency, as well as to potentially widen the application’s role among other central institutions.

The lab notably commented in a patent application released in November 2017:

“The virtual currencies issued by private entities are fundamental flaws given their volatility, low public trust, and limited useable scope. … Therefore, it’s inevitable for the central bank to launch its own digital currency to upscale the existing circulation of the fiat currency.”

Read one of the most recent patent applications below:

PBoC Digital Currency Research Lab by CoinDesk on Scribd

Chinese yuan image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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The Fed Should 'Get Serious' About Crypto, Says Former FDIC Chair

The Federal Reserve should seriously consider its own crypto, the former head of the U.S. government’s deposit insurance corporation wrote in an op-ed last week.

In a piece published Friday by Yahoo Finance, Sheila Bair, the former chair of the US Federal Deposit Insurance Corporation (FDIC), emphasized the pressing need for the Federal Reserve Bank to seriously consider the prospects of a central bank issued digital currency (CBDC).

She warned:

“If it does not stay ahead of this technology, not only could banking be disrupted — but the Fed itself could also be at risk.”

A CBDC, in theory, would not have the same kind of culpability to large fluctuations in value given proper oversight and management by a centralized authority. Beyond this, Bair points out that centralized digital currencies would be “much more effective tools for conducting monetary policy to address economic cycles.”

Currently, the status quo allows the government to stimulate and slow economic activity in periods of recession and boom, respectively, through government-sponsored securities sales directed towards domestic banks.

But what if the “FedCoin” – a digital currency issued and backed by the Federal Reserve Bank, was held by all consumers? Then, changes to interest rates encouraging savings and in other times, spending, would be felt by consumers directly rather than through the policy changes of domestic banks.

Bair counters such a perceived benefit to centralized digital currencies by offering a potential downside. Credit availability. Consumers wanting to hold all of their wealth in CBDCs would naturally cause credit deficits if parameters are not put in place ensuring banks and other financial businesses remain competitive against a hypothetical “FedCoin”.

Bair’s comments on the viable use of CBDCs by the central bank are timely as government officials around the world are also chiming into the conversation considering the merits of cryptocurrencies like bitcoin in structure but state-controlled in vision.

Digital dollar concept image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.