Looking to get involved in ‘the future of money,’ a former Fed governor, who was also a finalist to head the U.S. central bank, thinks the idea of a state bank-issued digital currency deserves serious consideration.
FedCoin: Just an Idea, for Now
Kevin Warsh was a Federal Reserve governor from 2006 to 2011 and a top contender to become the agency’s chairman last year. If he had returned to the Fed, Warsh said he would have appointed a team ‘to think about the Fed creating FedCoin, where we would bring legal activities into a digital coin.’
Warsh added that blockchain technology, which permits a reliable, decentralized record keeping of transactions, could be useful in the payment systems — which enable the transfer of trillions of dollars annually — operated by the Fed.
“It strikes me that a central bank digital currency might have a role to play there,” Warsh, who is now a distinguished visiting fellow at the Hoover Institution at Stanford, told reporters last Thursday.
Some central banks are already moving into the digital currency space, including financial authorities in Singapore and at the Bank of England. Jerome Powell, President Trump’s eventual appointee, also acknowledged the potential applications at his confirmation hearing for the Fed chairmanship this past November:
“We actually look at blockchain as something that may have significant applications in the wholesale payments part of the economy,” Powell said. “Not that it would supplant and replace cash, but it would be a pretty effective way when the next crisis happens for us to maybe conduct monetary policy.”
Banks and Cryptocurrencies
To many in the cryptosphere, it would be quite the twist if the technology — which is motivated for some by the distrust of central banks — were to become a key tool for those very institutions.
That said, such an application may address some of the concerns connected to cryptocurrencies today. For example, one problem currently faced is the volatility associated with the coins as a medium of exchange. This is something central banks could potentially help address, having spent hundreds of years learning how to keep the value of money stable.
Another worry is that Bitcoin and its peers can help facilitate tax evasion, money laundering, and fraud — and central banks are experts at building systems that allow the enforcement of those laws.
“Congress gave the Fed a monopoly over money,” Warsh said. “And if the next generation of cryptocurrencies look more like money and less like gold — and have less volatility associated with them so they would be not just a speculative asset but could be a reliable unit of account — as a purely defensive matter I wouldn’t want somebody to take that monopoly from me.”
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