Currency expert: Fedcoin is the last straw to solve the dollar crisis

The Federal Reserve will not only issue its own cryptocurrency, but will also ensure its domestic adoption. This is the prediction made by currency expert Doug Casey. Over the years, his predictions about economic and political situations have been eerily accurate. In his recently published book, Living in the Fedcoin Era: How to Protect Yourself from America's Coming Monetary Reform, he stated that the US government will definitely issue its own Bitcoin. Casey believes that this policy is the "last arrow" in the US currency "quiver" (the only way to solve currency crises).

So how will the government do this? He speculated:

Initially, I would guess that (Fedcoin) will exist as a parallel currency (currency used in parallel with fiat currency). It may only be usable within the United States. In fact, it can be used for foreign exchange controls, which may be more effective than directly restricting Americans from opening accounts with foreign banks and brokers (currency controls stipulated in the Foreign Account Tax Compliance Act)... I think it is very likely that they will do something about it soon.

Fedcoin

Fedcoin is a cryptocurrency or protocol created by a central bank. It would be easy for a central bank to create its own "bitcoin", and a large number of bitcoin consultants have also expressed their opinions.

In “A Personal Insight into Fedcoin – A Federal Reserve-Backed Cryptocurrency” (March 9, 2015), Albert Szmigielski wrote:

The Fed should pre-mine all coins issued on the blockchain... Once all (or some) of the cryptocurrency is issued in the first block (the genesis block), the pre-mine can start. The Fed may price each Fedcoin at $1.

In “Fedcoin” (October 19, 2014), JP Koning said:

The Fed may create a new blockchain, Fedcoin. Or they may create a ledger similar to Ripple. There is no essential difference between the two. However, Fedcoin and traditional crypto ledgers are not exactly the same. In Fedcoin, there is a user (the Fed) with special permissions to create and revoke ledger access at will... The Fed will allow two-way exchange of dollars and digital reserves - the exchange rate may be 1:1.

Koning used some math and cited insights from economist Sina Motamedi to give “a more technical explanation” of how the Fed’s blockchain ledger would work. Motamedi said:

The simplest way for a central bank to issue its own cryptocurrency is to fork a new protocol directly from the Bitcoin protocol. This new protocol is basically the same as the Bitcoin protocol, except that the mining rewards will be adjusted... Like paper money, central bank cryptocurrencies can be decentralized (in transactions) and centralized (in currency issuance) at the same time.

When the Bank of England published a report (full text download) to study the issue of national digital currency (February 2015), the discussion on this topic became more and more heated. I believe that Bitcoin payment company Payment21 is not the only one in the circle who is trying to find the answer: "Bank of England: Why does the central bank want to issue digital currency?"

There are many similar activities in the United States. In June 2016, central banks from more than 90 countries held a closed-door meeting with Bitcoin experts in Washington. Janet Yellen, chairman of the Federal Reserve, presided over the meeting, and many well-known institutions including the International Monetary Fund (IMF), the World Bank (World Bank) and the Bank for International Settlements (BIS) participated in the gathering.

Using blockchain protocols for bank transfers was the focus of the conference, but the topic of issuing official digital currencies also attracted a lot of attention. Adam Ludwin, CEO of blockchain company Chain, gave a speech titled "Why Central Banks Issue Digital Currencies". In his speech, he encouraged governments to adopt this disruptive technology to create new assets.

Money as a medium of exchange has undergone only a few evolutions in history: from precious metals to bearer currencies to today’s electronic ledger-based systems. Bitcoin and blockchain represent a transition to a new medium. This transition is often referred to as distributed ledger technology… but I think of it more like a bearer instrument, like paper money, but in digital form.

The key to issuing Fedcoin lies in the trade-offs that come with pegging cryptocurrencies to traditional currencies. This process of pegging may not be spontaneous. Motamedi explained:

Just like the development of fiat currencies, the central bank will eventually create its own cryptocurrency protocol and ban the use of other digital currencies. We can call the central bank's cryptocurrency protocol BitDollar. Of course, this BitDollar can be exchanged for US dollars at any time, at least at the beginning.

Koning was more direct:

The naysayers (cryptocurrency supporters) must quickly stabilize Bitcoin before Darth Vader (the villain in Star Wars) strikes, otherwise their Bitcoin companies will go bankrupt sooner or later and they will have to write code for the government.

Why Fedcoin?

Casey inferred support for Fedcoin in the Western world while analyzing the current state of the U.S. central bank system.

He didn’t believe anything the Fed said. The U.S. government was already bankrupt because of its high debt, with total liabilities far exceeding total assets. Casey explained:

Social Security is bankrupt... 47% of Americans rely on government assistance... One-third of the U.S. government's assets come from student loans; a total of $1 trillion. These are little-known facts.

The dollar no longer has the stability of being the world's currency, a privilege that has long been threatened by countries such as China and Russia, which are actively exploring alternative mediums of exchange in global trade. As global currency correlations weaken, Casey believes that traditional monetary management methods - quantitative easing and zero or negative interest rates - can no longer support the increasingly weakened dollar. The traditional model "has reached the end of the road... So what should the Fed do?"

The Fed can only issue a cryptocurrency; Fedcoin is coming soon. And, according to Casey, the main advantage of this policy by the government is that it centralizes supply and ensures transparency of demand (or transactions), thereby achieving the greatest degree of centralized control of the economy.

So why should people use cryptocurrency? Fedcoin exists as a parallel currency that can be used to pay taxes or be associated with people's rights such as social security systems. In addition, Fedcoin can promote the development of a cashless society, because the privacy of physical currency is not conducive to centralized management by the government.

Casey noted:

[The Fed] likes to blame everything on the lack of transparency. But with blockchain and Fedcoin, they can see everything at any time. This system is completely transparent...without cash, there is no privacy. If you keep all your assets in the bank, the government can know what you sold, what you sold, and how much you made. Everything is under their control; at that time, they can take everything that belongs to you...including your account, provided that your political leanings are questionable.

Fedcoin could give governments god-like powers to combat crimes like drug trafficking and money laundering, as they claim.

However, there are holes in this argument; for example, most black market activities are ethical and not criminal. Casey also believes that Fedcoin could endanger the property and freedom of ordinary people.

People currently engaged in the underground economy actually provide the most practical goods and services. Once the government starts using Fedcoin to increase taxes, it will definitely endanger economic development. Fedcoin can only help the US government, and economic development is another matter.

Fedcoin can also become a powerful tool for social control. From the perspective of privacy, Fedcoin is the anti-cash.

If I have a $100 bill and a few $10 or $20 bills in my wallet, I can use them to buy whatever I want, and it's hard for anyone to know what I bought unless I ask for it. But with blockchain... the Fed knows exactly who the money is and what it's used for. They can add various programs (probably using mechanisms like smart contracts) to prevent certain transactions... in other words, there are limits on what you can do.

Overweight people might not be able to buy candy; gun owners might not be able to buy bullets; teenagers might not be able to buy beer, cigarettes, or video games. The possibilities are endless. Fedcoin could even affect existing policies: Holders of food stamps (which the government gives or sells to low-income people at a low price to maintain a minimum standard of living) can't buy alcohol, go to casinos, or go to strip clubs. Fedcoin can bring great efficiency, but it can also exacerbate social divisions. The government can "ban everything without even passing a law... If your Fedcoin phone or chip limits your purchasing power, will you do whatever it takes to get what you want?" Politically controversial topics like gun registration may not be affected.

I have my doubts about one of Casey's views. He believes that most Americans will accept the "chip implantation" control method of Fedcoin. But I never doubt the determination of ordinary people to defend their own interests.

Technological progress?

Casey likens this potential monetary reform to the Industrial Revolution. Advances in technology have given people unprecedented freedom and real life; life expectancy and population growth have also increased dramatically.

Bitcoin and blockchain can also liberate individuals, but revolutionary technologies also challenge the status quo of society. Therefore, traditional forces will try to control these technologies.

It’s unclear whether governments will succeed; perhaps they will fail due to their own incompetence or the centralized nature of cryptocurrencies. But it’s clear that governments are trying to control this technology. If they do, we should respond by pushing for technological progress and leaving those who refuse to follow through to history.

Those working on cutting-edge technology are today’s freedom fighters.