Posted on

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.

Posted on

Former FDIC Chair: Bitcoin Policies Shouldn't 'Feed the Frenzy'

Sheila Bair, the former chair of the U.S. Federal Deposit Insurance Corporation (FDIC), is arguing bitcoin shouldn’t be banned just because it doesn’t have “intrinsic value.”

In an op-ed article published on Yahoo Finance this week, Bair instead contends policies should be in place to protect investors. In the post, Bair elaborated that currency itself was once just like bitcoin — an idea assigned value by societies because people needed a medium to trade and that depended “more on psychology than physical attributes.”

She added:

“Instead of making its own value judgments about bitcoin, what government should do is first make sure our policies don’t feed the frenzy.”

While Bair’s view in supporting bitcoin is not entirely surprising given her roles as an independent advisor and director to several blockchain and cryptocurrency related projects, it is nonetheless notable given her previous capacity serving as the chair of FDIC, an agency created by the Congress to ensure financial confidence and stability.

She led the agency from 2006 to 2011.

“Since the beginning of commerce, humans have assigned value to things of no readily-apparent intrinsic worth. Particularly in the case of mediums of exchange, a.k.a. currency, we assign value simply because those with whom we transact do so as well,” Bair added.

Yet, while citing a few historical examples where the government had failed in maintaining the value of its fiat currencies, such as Germany in the 1920s and the Southeast Asian countries in the 1990s, Bair believes the role of the government should be focused on ensuring a fair and well-informed market, one free from fraud and manipulation and prohibiting bitcoin speculation from federally insured banking organizations.

Sheila Bair image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.