A New Digital Currency is Being Pursued by The Fed, The BOE, and The PBOC



central banks are planning to implement a new form of currency that has the potential of being an even more profound change than 1913 1933-1945 or 1971 back in early 2014 I wrote what is now how they got us into this mess and it I discussed an option that the government's and banks might use to get us out of the monetary mess we now find ourselves in it was called the e dollar the e dollar is simply a digital currency that has an exchange rate with cash the central bank would set a rate at which old paper dollars would lose value against the e dollars held in a bank account under an e dollar system any physical cash from me from the banking system would lose value against T dollars retaining an account this would effectively eliminate the zero lower bound central banks would be free to implement significantly negative interest rates the e dollar would also carry the added optional benefit of a gradual debt Jubilee if the powers of the bay decided to allow the old debt to remain denominated in old dollars when I saw the dollar as a possibility miles Kimball an economist with the University of Michigan was the only other person around discussing it he had started presenting the concept as an option to central banks in reality he was breathing new life into an old concept with a digital age economist Robert Eisler floated a similar idea during the Great Depression only it was to be maintained with a ledger system by banks and retailers the computer age makes this concept that much easier i tacked on to this idea that the new $1 could be a cryptocurrency eliminating the need for keeping digital currency in a bank account instead being maintained in a digital wallet it's always easier to sell something new rather than something old and blockchain technology is certainly a relatively new innovation the concept of electronic cash has actually been investigated by the government for some time and I think the circumstantial evidence that bitcoin is being used as a beta test for such a system is compelling I'm no fan of the dollar it maintains the unbreakable covenant of shifting monetary systems of the last century the banks and the government gained power but this is precisely why such a concept has a following see still when initially writing about the e dollar I saw the possibility of it coming to fruition it's pretty slim after a string of recent events that possibility has increased exponentially first for the old news at the time of writing how they got us into this mess only one central bank can introduce modest negative interest rates Switzerland since then as most know Sweden Denmark the ECB and most recently Japan have joined the party but negative rates are only one piece of the idhaya concept puzzle the latest is how major central banks are considering direct issuance of crypto currencies recently there was a meeting held in Beijing with representatives from the People's Bank of China where the creation of the EU on was discussed the official statement is in Chinese but online translation makes their intent clear enough China would like to set up clear strategic objectives for digital currencies issued by the central bank and developed key technologies and applications aimed at an early launch of digital currency issued by the central bank one of their stated goals is more control over capital flows imagine that a totalitarian government wanting more control over its people chief strategist at the People's Bank of China said China is facing capital outflow pressure a digital currency would make it easier to check that capital flow as previously posted countries would likely need political cover but a crisis would afford to make a move toward a need dollar concept and it would appear China is not letting this latest crisis go to waste Citigroup has been researching the concepts for the People's Bank of China and it would help implement it we also recently discussed how one of the most influential economists in the world and Ihab named chief economist at the Bank of England suggested an e pound concept in September what appears the Bank of England is continuing in his quest Bank of England economist Michael come off and John bardy R wrote a paper in which they explore the macroeconomic consequences of central bank's themselves issuing digital currency in sizable amounts in direct competition with privately issued bank deposits I found this quote interesting and that it almost appears as if they are setting up the e pound as an adversary to traditional bank created money degress preliminary findings of the paper for central bank digital currency include a sizable increase in steady state level GDP and stabilize the business cycle by granting policymakers additional policy instruments that controls either the price or quantity of government provided liquidity additional policy instruments huh you wouldn't mean significantly negative interest rates and banning cash would you finally and here's the big one in January of 2015 David and Ando fado the vice-president of the Federal Reserve Bank of st. Louis said the following during a presentation this opens the door for some innovation potentially the government or some government agency can step in and be more efficient in the private sector and I'll defend that statement as well the notion is fed coin which is a term not original to me it is something I came across in the blogosphere JP coning was the first to coin the term but basically what this is is the idea of combining the Bitcoin payment system or the protocol with the US dollar he discusses why bitcoin is a bad form of money we believe the Fed can maintain the fixed exchange rate system between the currencies because the Fed would print both types of currency and no other private sector entity can print dollars giving the Fed a competitive advantage now if the Fed can maintain a fixed exchange rate they can vary the exchange rate as well he also wrote a blog post on the subject in which he wrote the following interesting excerpts and so here's where the idea of Fed coin comes in imagine that the Fed as the core developer makes available an open-source Bitcoin like protocol suitably modified called Fed coin the key point is this the Fed is in the unique position to credibly fix exchange rates between fed coin and the US dollar the exchange rate could be anything but let's assume par the exchange rate could be anything up he continues what justifies my claim that the Fed has a comparative advantage over some private enterprise that issues say Bitcoin backed by US dollars at a fixed exchange rate the problem was such an ax is precisely the problem faced by countries that try to peg their currency unilaterally to some other currency unilateral fix exchange rate systems are inherently unstable because the agency fixing the Bitcoin to u.s. dollar exchange rate cannot credibly commit not to run out of US dollar reserves to meet Redemption waves of all possible sizes in fact the structure invites speculative attack he seems to be vilifying Bitcoin as inviting attacks from the every evil speculators this statement goes back to my comments and how they got us into this mess that when the time comes they will point out all the flaws of Bitcoin problems which they have fixed with the dollar or fake one here's my original text from 2014 at the same time they could say as in congressional testimony that Bitcoin had many benefits but was too dangerous without oversight but with the introduction of a u.s. crypto currency the e dollar all those benefits would be realized without the risk because of additional regulation and safeguards David goes on first the fed coin protocol could be made open-source primarily for the purpose of transparency the Fed should only honor the fixed exchange rate for the version of the software it prefers people could download free wide applications just as they do now for Bitcoin banks or ATMs can serve as exchanges where people can load up their fed coin wallets in exchange for US dollar cash or bank deposits from the perspective of the Fed because Fed coin can be viewed as just another denomination of currency its existence in no way inhibits the conduct of monetary policy which is concerned with managing the total supply of money and not as composition in fact fed coin gives the Fed an added tool the ability to conveniently pay interest on currency or conveniently charge interest for negative interest rates as is going on throughout the world and the Fed considers a possibility I would call it a probability in the future let's not forget this is the st. Louis Fed official the same st. Louis Fed that wrote a paper indicating the QE doesn't work and when at the zero lower bound one of the few options to ease monetary policy besides QE is neg of REITs he hits on a couple of my points as to why the government would love the e-dot in short Fed coin is essentially just like digital cash except in one important respect physical cash is still a superior technology for those who demand anonymity cash does not leave a paper trail but Fed coin and Bitcoin do leave digital trails in fact this is an excellent reason for why fake coins should be spared any kyc restrictions first the government seems to be able to live without imposing kyc restrictions on physical cash transactions why should insist on kyc for digital cash transactions and second digital cash leaves a digital trail making it easier for law enforcement to track illicit trades understanding this it's unlikely the Fed coin will be the preferred vehicle to finance illegal activities hands with this finally the proposal for Fed coin should be in no way construed as a backdoor attempt to legislate competing cryptocurrencies out of existence the purpose of fake coin is to compete with other cryptocurrencies to provide a property that no other cryptocurrency can offer guaranteed exchange rate stability with the US dollar adopting fed coin means accepting the monetary policy that supports it to the extent that people are uncomfortable with the Fed monetary policy they may want to trust their money if not their wealth with alternative protocols because why would you want to stop the e dollar fed coin beta-test too early when they are still gathering good information and research from it there have been plenty of stories in the alternative financial media on cash bands negative rates and DEF Jubilees but none about doing it all in one fell swoop with an e dollar concept as covered in the past just doing a cash man and negative interest rates would not be as effective as the e dollar in terms like cash man negative rates and debt Jubilee could have some very negative connotations with the public the e dollar or Fed coin on the other hand could be sold as an innovation and who wants to stand in the way of progress the millennial generation of which I am a member could easily accept the new cryptocurrency and blow off naysayers as just not getting it I've not changed my mind on holding a small allocation to Bitcoin but as the loathsome Jamie Dimon points out it is vulnerable and he has some valid points even Gavin Andresen a Bitcoin core developer in an interview with Chris Martenson indicated that if a government created a cryptocurrency similar to Bitcoin supported by tax collection and legal tender laws it would have a clear advantage over Bitcoin and would take back market share that said Bitcoin has proven it reacts well to monetary turmoil and there may be wonderful trading opportunities and what I believe is going to be a very promote to this decade to come this opportunity may be fleeting a time between when people rush to the cryptocurrency for safety while fiat currencies are faltering but before it is outlawed central banks are telling us they're going to issue a cryptocurrency they're implementing negative rates and they need a debt to believe why wouldn't they do all three and

9 thoughts on “A New Digital Currency is Being Pursued by The Fed, The BOE, and The PBOC”

  1. The recent push has been to punish savers and encourage spending. If you are going to devalue "real" cash to drive people to the E-Dollar aren't you encouraging saving? How is a negative interest rate on real cash, any different from a positive interest rate on E-Dollars, in this scenario. If you charge negative rates on E-Dollar, you drive people to hoard paper cash – sooner or latter you have to destroy the supply of paper cash to keep people in E-dollar, before you can implement a negative rate successfully, but destroying it would just make it worth more, wouldn't it?

  2. The value of bitcoin lies in it's decentralization. I agree that the fed could do their own thing, but they'll never be able to compete with new money.

  3. I just subbed you dude. I have such a poor understanding of economics, you wouldn't believe. {I'm older and blue collar}
    None of it makes any sense to me. So friggin abstract like imaginary numbers flying through the air. Maybe if I watch a few of your vids I'll get some ????? understanding of what's going on? It all seems to be structured to impoverish working people.

  4. FedCoin? Bitcoin is a lot more than just currency. FedCoin will not be able to compete with open source community driven by volunteers and free market. (Bitcoin might be replaced some alt coin, but it doesn't matter)

  5. edollar? Digital dollars? The dollar, and all other major currencies, are already digital currencies. Most dollars reside as 1s and 0s in bank accounts. The dollars in your wallet are paper tokens for a digital currency.

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