A sea change is coming to cryptocurrency in America. It is likely to hit in two separate waves: a central bank digital currency (CBDC) and draconian regulation that shuts down free-market activities, including development.
The Wave of a Central Bank Digital Currency
Robert Wenzel of the Economic Policy Journal has a warning. “A [U.S.] Federal Reserve created digital coin could be one of the most dangerous steps ever taken by a government agency. It would put in the hands of the government the potential to create a digital currency with the ability to track all transactions in an economy—and prohibit transactions for any reason. In terms of future individual freedom, this would be a nightmare.” If recent statements by American lawmakers and bureaucrats are an indication, however, state-issued crypto seems to be on its way.
A shift in attitude on CBDC is in the air. Consider Federal Reserve Governor Lael Brainard. In May 2018, she stated, “There is no compelling demonstrated need for a Fed-issued digital currency.” While acknowledging the efficiency and low cost of blockchain transfers, Brainard presented a familiar check list of objections to digital currencies. They were too volatile to be utilized as money; their anonymity protected crimes like money laundering and sex trafficking; they eluded regulation. Then Brainard added what may have been the fundamental reason for dismissing a CBDC. At the beginning of 2018, digital currencies were so small a part of the financial system that they posed no stability risk. They did not threaten the monetary status quo. Or, at least, Brainard did not perceive the threat.
In February 2020, her tune differed. “The Fed is conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC.” The main public argument for a CBDC is a perceived need to stabilize crypto by pegging it to traditional fiat, which is assumed to be less volatile. The “nightmare” of which Wenzel warned already has a name: Fedcoin. Read More...