Say Hello to Fedcoin, the U.S. Digital Currency
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Might the federal government launch a digital or cryptocurrency? Early forecasts say the “fedcoin” has bipartisan support. Jay Powell, appointed as Federal Reserve chairman by President Donald Trump, said in October that the Fed is conducting research into issuing a digital currency on its own and in partnership with other central banks and the Bank for International Settlements.
Janet Yellen, appointed as Federal Reserve Chair by President Obama, said in late February, “It makes sense for central banks to be looking at issuing sovereign digital currencies.” Neither Powell nor Yellen were the first U.S. government officials to hint at a federal digital currency.
They give different reasons. Powell is more conservative, and his focus is on addressing the competitive threat of bitcoin and digital currencies from countries such as China. However, if he wanted to make the dollar more competitive against the yuan, then he should bolster the Fed’s credit.
Yellen nods to a progressive idea, saying that a fedcoin, “could help address hurdles to financial inclusion in the U.S. among low-income households.” However, if she wanted the “un-bankables” to be able to open accounts, then she would repeal anti-money laundering and other regulations that penalize a bank for crimes committed by its clients. Accounts are rejected based on how many risk categories they have. Many poor people may fall into such categories. Regulations forcing banks to monitor client activities are expensive and effectively impose a powerful incentive on banks not to accept small clients.
Both Powell’s and Yellen’s statements are disingenuous. A fedcoin is coming because it’s necessary. Allow me to explain the two real reasons: The first is sinister and the second is pernicious.