The Federal Reserve welcomes cryptocurrency but says a national cryptocurrency is not needed

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The researchers at The Federal Reserve Bank of St.Louis say that while they welcome cryptocurrencies,  they don’t believe that central banks should establish a national cryptocurrency.

According to a report by Fed researchers Aleksander Berentsen and Fabian Schar, central banks can create and issues their own cryptocurrency but they should be cautious about its repetitional risk.

However, the key characteristics of cryptocurrencies are a red flag for central banks. That is no reputable central bank would have an incentive to issue an anonymous virtual currency. The reputational risk would simply be too high.

The report also say that the special feature of cryptocurrencies is that they combine the transactional advantage of virtual money with the systemic independence of decentralised transaction processing.

The special feature of cryptocurrencies is that they combine the transactional advantages of virtual money with the systemic independence of decentralised transaction processing. Furthermore, as with gold, the creation of new Bitcoin units is competitive. Anyone can engage in the creation of new Bitcoin units by downloading the respective software and contributing to the system.

The report also said that a central bank cryptocurrency should be centralised but if this will be the case, the crypto becomes the usual electronic money. So, a central bank digital currency is not a cryptocurrency at all because by nature cryptos are supposed to be decentralised.

Once we remove the decentralised nature of a cryptocurrency, not much is left of it. Virtual money that is centralised and issued monopolistically by a central bank is electronic central bank money. It is worthwhile to mention that electronic central bank money could have been offered a long time ago.The technology for issuing virtual money in a centralised way existed long before the invention of the blockchain.

About Arnold Zafra

Arnold Zafra is a freelance tech blogger from the Philippines who is enthusiastic about cryptocurrency, decentralised apps and other emerging developments in the tech industry.