{"id":165505,"date":"2020-02-25T15:54:03","date_gmt":"2020-02-25T20:54:03","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=165505"},"modified":"2020-02-25T10:54:35","modified_gmt":"2020-02-25T15:54:35","slug":"a-digital-fedcoin-may-be-coming","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/02\/a-digital-fedcoin-may-be-coming\/","title":{"rendered":"A Digital \u201cFedcoin\u201d May Be Coming\u2026"},"content":{"rendered":"
February 25, 2020<\/div>
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By Money Metals News Service<\/b><\/p>\n

Cryptocurrencies are based on blockchain technology that allows for de-centralized peer-to-peer transactions to take place outside the government-controlled banking system.<\/p>\n

Backers of cryptocurrencies such as Bitcoin tout their privacy advantages and resistance to inflation due to their strictly limited quantities.<\/p>\n

But what if this free-market innovation were co-opted to achieve opposite ends \u2013 centralized tracking of every transaction with no possibility of escaping digital devaluations?<\/p>\n

That\u2019s what some central bankers are ultimately aiming for by replacing paper cash with their own digitized, monopolized currencies.<\/p>\n

Federal Reserve Officials Are Eager to Follow China\u2019s Authoritarian Lead<\/h2>\n

Not surprisingly, authoritarian regimes such as Venezuela and China are leading the way in rolling out their own cryptocurrencies. But the U.S. may not be far behind.<\/p>

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Consider what Federal Reserve Governor Lael Brainard said<\/a> at a recent conference hosted by Stanford University: \u201cBy transforming payments, digitalization has the potential to deliver greater value and convenience at lower cost.\u201d<\/p>\n

These are selling points for Bitcoin. But Brainard clearly isn\u2019t a fan of this and other cryptos gaining wider use in the free-market. \u201cSome of the new players are outside the financial system\u2019s regulatory guardrails, and their new currencies could pose challenges in areas such as illicit finance, privacy, financial stability and monetary policy transmission,\u201d she said.<\/p>\n

Her solution? Centralization.<\/p>\n

\"U.S.<\/p>\n

Brainard noted that the Federal Reserve is \u201cconducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC (central bank digital currency).\u201d<\/p>\n

Fed chairman Jerome Powell has also taken a keen interest in the concept of central bank digital currency \u2013 i.e., Fedcoin.<\/p>\n

During testimony before Congress earlier this month, Powell noted that \u201cevery major central bank is currently taking a deep look” at cryptocurrencies, adding, \u201cI think it’s very much incumbent on us and other central banks to understand the costs and benefits and trade-offs associated with a possible digital currency.\u201d<\/p>\n

\u201cHaving a single government currency at the heart of the financial system is something that has served us well. It\u2019s a very, very basic thing, it really hasn\u2019t been in question, and I think before we move away from that, we should really understand what we\u2019re doing. Preserving the centrality of a central, widely accepted currency that is accepted and trusted is an enormously important thing.\u201d<\/p>\n

Venezuela issued a digital currency called the \u201cpetro\u201d in early 2018 \u2013 primarily as a way of getting around U.S. sanctions. It is purportedly backed one-for-one by barrels of oil.<\/p>\n

But the petro also circulates at a fixed exchange rate with the Venezuelan bol\u00edvar, giving officials the ability to devalue it at will.<\/p>\n

The Venezuelan regime may ultimately seek to push its citizens out of physical bol\u00edvars entirely and into digital petros exclusively.<\/p>\n

\u201cThe petro makes it much easier to monitor transactions \u2014 and punish those conducting transactions inconsistent with the prevailing government\u2019s objectives,\u201d explains William J. Luther of the American Institution for Economic Research<\/a>. \u201cBy requiring petro use, the Maduro regime tightens its grip on power.<\/p>\n

China\u2019s central bank, meanwhile, is actively pursuing digital currency as a way of enforcing its \u201csocial credit score\u201d system on its populace.<\/p>\n

Even as Chinese authorities have banned most cryptocurrency mining and trading, they have invested heavily in centralized cryptocurrency infrastructure. China has reportedly filed 84 patents in pursuit of a new electronic currency payments system.<\/p>\n

How to Break Free from the Brave New Digital Currency World<\/h2>\n

In the event that the decentralized cryptocurrency dream turns into a centralized Fedcoin nightmare, what can individuals do to maintain some measure of financial privacy?<\/p>\n

Since all Bitcoin transactions are already recorded on a ledger, it would be technically feasible for the government to track them back to exchanges and demand they release user data.<\/p>\n

\"Cryptocurrencies\"<\/p>\n

Worse, if all cryptocurrencies are some day banned, individuals would assume great legal risks by holding wealth in black market cryptos.<\/p>\n

Security risks and the proliferation of cryptocurrency scams are also threats to the financial privacy and security of crypto holders.<\/p>\n

Last week, a California man pleaded guilty to bilking nearly $150 million out of thousands of people worldwide through a digital currency scheme.<\/p>\n

The scheme centered around a phony digital currency called GemCoin<\/a>. It was pitched as being backed by precious gemstones. But the so-called GemCoins were ultimately backed by nothing but fraudulent promises.<\/p>\n

Some digital coins claim to be backed by gold or silver. Even when they are legitimate, these types of vehicles should still be regarded as entailing many of the risks of cryptocurrencies in general.<\/p>\n

No digital instrument can replicate the properties of physical coins. Gold<\/a> and silver coins<\/a>, bars<\/a>, and rounds<\/a> you can actually hold in your hand carry no counter-party risk and no risk of being stolen through cyber attacks.<\/p>\n

Moreover, while the number of cryptocurrencies that could be launched into existence is unlimited, the amount of precious metal that can be mined from the earth is finite.<\/p>\n

Hard money may lack the convenience of digital currency when it comes to transferring funds over the internet. But most people who hold gold and silver coins do so for long-term offline wealth preservation and true independence from the financial system.<\/p>\n

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The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Money Metals News Service Cryptocurrencies are based on blockchain technology that allows for de-centralized peer-to-peer transactions to take place outside the government-controlled banking system. Backers of cryptocurrencies such as Bitcoin tout their privacy advantages and resistance to inflation due to their strictly limited quantities. But what if this free-market innovation were co-opted to achieve […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-165505","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165505","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=165505"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165505\/revisions"}],"predecessor-version":[{"id":165507,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165505\/revisions\/165507"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=165505"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=165505"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=165505"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}