The Central Bank not in support of CBDC’s
The Fed has rejected the idea of a Centrally Backed Digital Currency(CBDC) as this goes against the old financial system. Bitcoins big price swing that push it a little into the mainstream audience, has led some to believe that this can become the future of money.
There is currently an incredible amount of companies that are promoting the Blockchain technology based assets. A lot of advocates have been benefiting from the cryptocurrency industry, but there is still a long way to go before the big financial institutions decided to start entering the market.
According to a report coming from Quartz on December the 27th, there was a meeting back in May of 2018 with Lael Brainard, which is a Federal Reserve Board governor. Lael gave a speech at the Decoding Digital Currency Conference in San Francisco where she criticised the implementation of cryptocurrencies and its lack of transparency.
There were some positive thoughts on the Blockchain however, praising it for being one of the most significant technological innovations of the decade. Lael was still skeptical however of the full uses of cryptocurrencies like bitcoin.
She thinks that cryptocurrencies are extremely vulnerable to hacks and money-laundering , which can make financial institutions think twice before dealing in these digital assets. The implementation could mean that if a national digital currency was set in the economy it would affect retail banking, even with the option of providing loans to the public.
The infrastructure for a good CBDC is already in place
Central banks wanting to issue digital currencies with the Blockchain have been getting a lot of attention. According to Christine Lagarde, which is the director of the International Monetary Funds, has shown support towards the idea at the Singapore Fintech Festival back in November.
According to Even Kevin Warsh which is a former governor at the US Federal Reserve he was one of the candidates to become chairman of the Reserve and pushed forward with the idea.
Researchers at the St. Louis, Fabian Schar and Aleksander Berentsen, did a further study of the idea and its applications. It was concluded back in February that Central Banks could easily create its own cryptocurrency based on its requirements.
The researchers have noted that the idea would be hard to implement, saying that:
“Cryptocurrency is still a very young technology and there are large operational risks. Overall, we believe that the call for a Fedcoin or any other central bank cryptocurrency is somewhat naive.”
Fabian and Aleksander argued that the key characteristics of a cryptocurrency are red flags for Central banks. This brings with it the consequences of not issuing a permissonless Blockchain network. This is what is called a private Blockchain, and would be centrally-managed money.
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