Fed researchers propose issuing Digital Federal Reserve Notes

Control Structure of Currencies

Control Structure of Currencies

 

Researchers at the St. Louis Federal Reserve reviewing Bitcoin and other cryptocurrencies say that a “Fedcoin” on the cryptocurrency model would not be feasible. What they recommend instead is that the Fed allow individuals to bank at the Fed in digital dollars, just as banks are allowed to do now. This ability would eliminate the risk of bank runs, since the Fed can’t run out of dollars, and would force private banks to raise the interest rates they pay on deposits if they want to keep their depositors. The Fed would be issuing digital dollars, expanding the supply of "legal tender" issued by the government. Currently legal tender is only 5% of the money supply (the 5% that is in paper dollars); the other 95% is issued privately by banks.

Now we just need to make the Fed truly “federal.” The Fed is actually our biggest “public” bank. The problem is — as we all know — it’s not really public. We need to nationalize the Fed, making it a true public utility!

From an article in CCN:

“In an effort to assign Bitcoin one of the above monetary categories, the researchers concluded that Bitcoin actually defied traditional categorization – it’s none of the above

From the St Louis Fed report:

“We believe that there is a strong case for central bank money in electronic form […] central bank electronic money satisfies the population’s need for virtual money without facing counterparty risk.”

The article continues:

“The bank believes cryptocurrencies are a viable alternative to cash and will be able to outperform cash when issues like scalability, high fees, and adoption are solved, citing the Lightning Network as one of the potential solutions to these problems.

The bank proposes the issuing of central bank electronic money for all as another solution, saying that this practice would help discipline commercial banks and force them to incentivize users to participate with higher interest rates to compensate for higher volatility. The St Louis researchers believe that this would simplify monetary policy by promoting the widespread use of central bank accounts with the interest rate as the main policy tool.”

[Read the full article]

[Read the report]

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