Do not expect a Fedcoin, the chairman of United States Federal Reserve System conveys his clear intentions regarding the idea of establishment of cryptocurrency backed by the central bank of U.S. in a testimony given before the House Committee on Financial Services.
The chairman of the Federal Reserve of U.S. clarified any rumors or speculations concerning the establishment of a federal-backed cryptocurrency. He clearly implied that nobody should be expecting a “Fedcoin” anytime soon.
We’re not looking at this at the Fed, that the Fed would do a digital currency. That’s not something we’re looking at.
Before even thinking about the establishment of a framework of a cryptocurrency based upon backing by the central bank, focus should be given to the consolidation of a stable and viable banking system in the U.S. The matters of such a liberated and volatile market like cryptocurrency should not be tangled along with the governmental and official matters. The anonymity and a decentralized nature might not be something that the government should be meddling with.
The age of government controlling everything seems to be going away in the financial sector with the evolution of the much needed decentralized ledger technology (DLT). The monopoly that the central banks across the world have maintained for such a long period of seems to be vanishing with the evolution of blockchain-based decentralized currency networks.
On the other end of the spectrum, in Europe, we see a general inclination towards the idea of a government-backed cryptocurrency in order to utilize the modern technological advancements. Governments in Europe should evolve in the modern world employing all the technological advancements, according to the recommendations provided in the report published by the European Parliament, it is recommended that these advancements should include the incorporation of central bank-backed cryptocurrencies in the financial framework.
The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the inter-cryptocurrency market, broadening the number of competitors. A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy.
Regarding the control and limitations associated with the central bank-backed currency system, it is also mentioned that:
The international nature of cryptocurrency markets is also a challenge to competition policy at the European level. Many of the players operate from global locations outside the jurisdiction of European competition authorities, which makes investigation or prosecution on anticompetitive behaviours more difficult. The main weakness of Europe is the concentration of the mining activity on non-European countries.
Whether feasible or not, a central-backed cryptocurrency might be possible in the near future. It is even supported by some of the major spearheads of the financial sector in the world such as Mastercard.
Regarding a government-backed cryptocurrency, the CEO of Mastercard, Ajay Banga stated that:
If the government creates digital currency, we will find a way to be in the game. We will provide rails for moving currency from customer to merchant. The government mandated digital currencies are interesting. Non-government mandated currency is junk.
Alongside, the Mastercard Asia-Pacific co-president, Ari Sarker also made a statement that:
If governments look to create national digital currency we’d be very happy to look at those in a more favorable way [compared with existing decentralized cryptocurrencies]. So long as it’s backed by a regulator and the value. It is not anonymous, it is meeting all the regulatory requirements, I think that would be of greater interest for us to explore.
All in all, as the idea of having a cryprocurrency backed by the government and the central banks might be floating around, we have different opinions on it as of yet, with the U.S. backing out completely regarding the idea of a Fedcoin and EU working in the favor of government-backed cryptocurrency.
The use of blockchain network destroys the monopoly of central banks in controlling the economic life and the flow of money. With such distributed networks, the authority directly goes to the user without having to go through a central medium, providing liberty previously not available. Although this independence might seem to be the best case as of now, the use of cryptocurrency in illegal frameworks also raises questions on its worth, and demands for a state-backed cryptocurrency with less anonymity in order to filter out the illegal activities.
As per Fedcoin, it seems like a false step as of now, according the chairman of the U.S. Federal Reserve.