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. Bitcoin’s big price swing that pushed it a little into the mainstream audience, has led some to believe that this can become the future of money.
Currently, an incredible amount of companies that are promoting Blockchain technology-based assets. With a lot of advocates benefiting from the cryptocurrency industry, there is still a long way to go before the big financial institutions decide 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, a Federal Reserve Board governor where Lael gave a speech at the Decoding Digital Currency Conference in San Francisco. At the conference, she criticised the implementation of cryptocurrencies and its lack of transparency.
There were, however, some positive thoughts on the Blockchain as it was praised for being one of the most significant technological innovations of the decade.
Lael is, however, still sceptical of the full use 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
entral banks wanting to issue digital currencies with the Blockchain have been getting a lot of attention. Christine Lagarde, the director of the International Monetary Funds, showed support towards the idea at the Singapore Fintech Festival back in November.
Even Kevin Warsh, a former governor at the US Federal Reserve and one of the candidates to become chairman of the Reserve has 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 permissionless Blockchain network. This is what is called a private Blockchain, and would be centrally-managed money.
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