The Federal Reserve of the United States, known commonly as Fed, has lost its interest in the idea of national cryptocurrencies. With the value of Bitcoin skyrocketing last year, blockchain seemed like the future, but it was actually a lot more hype than anything else, so now the Fed is abandoning the idea of the so-called Fedcoin.
While Christine Lagarde, the director of the International Monetary Fund (IMF) believes that digital currencies emitted by central banks can be a good idea, the Fed disagrees. According to Lagarde, everybody wants a spot in a brand new cashless world so the central banks who would come before could have an edge.
However, the prolonged bear market after the hype bubble exploded has made people cautious. At first, it seemed like Bitcoin was a panacea for all kinds of economic issues. During 2018, however, it became clear that it had to scale to work better and that the future, well, was the future.
Bitcoin struggled a lot and the Fed dropping the idea of the Fedcoin is just another example of how the Bitcoin hype died out and now only the true believers and the investors who still are capable of making some money are in the market to stay.
Last year, Kevin Wash, the former governor of the US Federal Reserve, which was a candidate for Fed Chairman at the time, told the media that a Fedcoin would be a great idea. It would be a national blockchain-based currency, just like the Venezuelan Petro was, the only difference is that it would actually work.
This new token should be digital, transparent and considerably more efficient than paper-based money. It was also said that it could give the Fed access to some interesting, yet unconventional tools like the negative interest rates.
Cryptos Are Not Suited For Central Banks, The Fed Believes
While researchers of the Fed have determined that the bank could easily create cryptos, the idea was not deemed very good by them. This is mostly because the structure of how cryptocurrencies work is full of what were considered important red flags.
For instance, the law enforcement would need to monitor well who is using the money for what, so creating a national crypto without creating measures to identify anyone using the money would basically be an invitation for all kind of criminals. Also, it would be hypocritical to tell banks to do it if the own government did not enforce this kind of rule.
It was also noted that, when you remove the permissionless ledger from the network, you just have a centralized digital currency and nothing more. Without this, you just have the blockchain on the way because it is not a cryptocurrency anymore.
Centralized money does not need a blockchain at all. In fact, even before the blockchain was created by Satoshi Nakamoto the technology for creating centralized digital money already existed, so the blockchain does not make anything new here. All of this combined with the “high operational risks” makes the whole idea especially not good.
Lael Brainard, the governor of the Federal Reserve Board, has recently affirmed that central bank issued cryptos or centralized coins were not so good because the blockchain, which sits at the heart of the cryptos, is not really useful as a store of value, as cryptos are simply way too volatile.
Brainard was also concerned with international cyber attacks and how the currency could affect banks. Digital money in the United States, she affirmed, is already good and useful, so there is really no need for using cryptos.