One topic of constant debate among Bitcoin enthusiasts around the world is regulation and legislation. Most people are in favor of regulation Bitcoin and other digital currencies, as it will give these currencies a more “legit” status. Crypto anarchists on the other hand want nothing to do with regulation, which is understandable up to some degree. But what if the US government decided to create their very own digital currency?
FedCoin : Cryptocurrency Backed by the US Government?
If you have had a chance to read “The Age of Cryptocurrency” – a great book written by Paul Vigna and Michael J. Casey on the topic of Bitcoin and digital currencies – you may have come to the realization that a government-issued cryptocurrency may not be such a bad thing after all. That is, depending on which country is issuing that currency, but still, it’s only a matter of time until governments start seeing the benefits of blockchain technology.
Picture the following scenario : the United States government adopts blockchain technology and decides to create their own cryptocurrency. Not the E-Dollar or something similar, but they simply call the concept “FedCoin”. The name is derived from that fact that this cryptocurrency alternatively federally backed and tied to the US Dollar. You can see where this could form a problem already, but bear with me for a moment.
Do keep in mind that none of this is actually set in stone right now, as this post is loosely based on a blog post made by David Andolfatto, an economist for the Federal Reserve Bank of St. Louis. However, it has to be said that Mr. Andolfatto did give a presentation regarding a federally-backed cryptocurrency during the International Workshop on P2P Financial Systems 2015.
While tying FedCoin directly to a fixed value in US Dollars seems to solve Bitcoin’s major drawback – price volatility – it also creates a whole new set of problems. The US economy is far from stable right now, and the US Dollar, albeit being the world’s “leading” coin, is not something a cryptocurrency should be pegged against. And certainly not a fixed value in US Dollar, as several coins have tried to deliver on that promise and ultimately failed.
Furthermore, having a digital currency created and managed by a federal government will only lead to even more “fracturing” of the current financial system, due to the fact that FedCoin would be pegged against the US Dollar. the most likely scenario would be that FedCoin is only usable within the United States (possibly even excluding Canada), which in turn makes it centralized, going in against the decentralized nature of cryptocurrencies.
“Imagine that the Fed, as the core developer, makes available an open-source bitcoin-like protocol (suitably modified) called Fedcoin. The key point is this: the Fed is in the unique position to credibly fix the exchange rate between Fedcoin and the USD (the exchange rate could be anything, but let’s assume par).”
Digital Denomination of the US Dollar
As you can clearly see for yourself, FedCoin would be nothing more than a digital denomination of the US Dollar, and not bring anything new to the table. In fact, US citizens are even less likely to benefit from the creation of FedCoin in its current form, as there is no added value to the coin, but if something would go wrong with FedCoin, the US Dollar will take a serious hit in value as well.
Granted, there would be some advantages such as the low transaction fees and peer-to-peer transfers of monetary value to anyone in the world. But it wouldn’t actually solve any of the problems that Bitcoin is trying to solve. In fact, FedCoin would be piggybacking on the success and technology created by Bitcoin and its original developer(s).