Business & Finance

FedCoin Should be a Priority For Federal Reserve, Says Former FDIC Chair

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

This is the warning that a former head of the U.S. government’s deposit insurance corporation, Sheila Bair wrote in an Op-Ed, urging the Federal Reserve to become more serious about cryptocurrencies.

Despite the tough stance that cryptocurrencies have faced from governments and central banks across the world, they continue to grow and the industry continues to garner more attention and acknowledgment.

Cryptocurrencies and their underlying technology, blockchain are now being adopted in various industries like agriculture, shipping, e-commerce, finance, and many others. At the moment, there are over 1,600 cryptocurrencies serving different aspects of the global economy.

Federal Reserve should take cryptos seriously

In an article published on Friday by Yahoo Finance, the former chair of the U.S. Federal Deposit Insurance Corporation (FDIC) commented that the Fed should take cryptocurrencies seriously if they don’t wish to be left behind, adding that the bank should make working on a central bank issued digital currency (CBDC) a priority.

CBDC, according to the current theories, wouldn’t work in the same way that normal cryptocurrencies would work. It would be less volatile than the normal cryptocurrencies and in addition to that, it would also be managed by a centralized authority.

Bair is of the view that centralized cryptocurrencies would be “much more effective tools for conducting monetary policy to address economic cycles.” At the moment, governments all over the world have the power to stimulate or slow down economic activities during a recession or a boom via government-sponsored securities sales directed towards local banks.

The idea of FedCoin, a cryptocurrency that will be issued and backed by the Fed and held by all consumers, would be a very good idea. In case that happens, then policy changes by the Federal Reserve such as interest rates, would be felt by people directly instead of via local banks.

While talking about the potential benefits of a centralized cryptocurrency, she also talked about the potential downside of the coin. Consumers aiming to hold their funds in CBDCs would affect credit availability and credit deficit would become a big issue. For that, regulations need to be put in place to ensure that banks and other financial institutions retain their competitiveness against the FedCoin.

Some countries already looking into state-owned digital currencies

Any country that would launch a state-backed cryptocurrency would be behind Venezuela which has already launched its state-backed Petro. The cryptocurrency was launched by the country following trading sanctions placed on the country.

President Maduro announced that Petro is now the country’s primary currency as it looks to circumvent past the trading sanction using the cryptocurrency.

From all indications, state-backed cryptocurrencies would soon be a very common thing. The Bank of England (BOE) Governor, Mark Carney, continues to reiterate that the central bank is considering a state-backed cryptocurrency despite the concerns of digital currencies so far this year. Earlier this year, the BOE formed a research unity that was tasked with looking into the possibility of a state-backed cryptocurrency that would provide stiff competition to industry leaders Bitcoin and Ethereum.

Mark Carney reiterated that stance during a conference in Stockholm regarding the future of central banks, which indicate that England is becoming more serious about launching their state-owned cryptocurrency.

Switzerland also established a research group that has been tasked with studying the effects of a state-owned ‘e-franc’ cryptocurrency. The Swiss government is open to creating a state-backed cryptocurrency dubbed ‘e-franc’ if the research group comes back with a favorable report.

The council in its statement mentioned that;

The Federal Council is aware of the major challenges, both legal and monetary, which would be accompanied by the use of an e-franc. It asks that the proposal be adopted to examine the risks and opportunities of an e-franc and to clarify the legal, economic and financial aspects of the e-franc.

However, the Swiss National Bank isn’t excited about the idea of a state-backed cryptocurrency as they consider a national cryptocurrency to be riskier compared to the privately owned cryptocurrency.

Other countries to have considered state-owned cryptocurrencies include Sweden with its e-krona, and Russia with its cryptorubble.

The comments by Bair, even though isn’t a confirmation that the U.S government is looking into a state-backed a cryptocurrency, it does show that they might be open to the idea in the future. With several countries across the world looking to cryptocurrencies and regulating the market, the U.S government wouldn’t want to play catchup to some of its competitors like England and Switzerland.

Mike Ben

Mike is a cryptocurrency enthusiasts and writer. The cryptocurrency world has become his primary interest, with movies and books, some of his favorite pastime activities. He's an investor in some blockchain projects; VeChain, Stellar Lumen, Gifto, Cardano, Bitcoin and Cindicator. Mike contributes guests posts to BlockPublisher & can be connected over Twitter or email editor.news@blockpublisher.com

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