The Federal Reserve Bank of San Francisco released a report on May 18 discussing the volatility of the bitcoin price and its impact on the ways bitcoin should be classified, whether as a currency, security, or commodity. Joost van der Burgt, author of the publication and fintech policy advisor at the Federal Reserve’s San Francisco branch, … Continued
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The Federal Reserve Bank of San Francisco released a report on May 18 discussing the volatility of the bitcoin price and its impact on the ways bitcoin should be classified, whether as a currency, security, or commodity. Joost van der Burgt, author of the publication and fintech policy advisor at the Federal Reserve’s San Francisco branch,
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The central banks of Norway and England have published reports exploring different models for central bank-issued cryptocurrencies. By contrast, Federal Reserve governor, Lael Brainard, recently expressed her opposition to central bank cryptocurrencies – claiming that such would result in broad “macroeconomic consequences.”
Decline of Cash Prompts Norwegian Central Bank to Consider Central Bank-Issued Digital Currency
A new report prepared by a working group of Norges Bank has indicated that Norway’s central bank is contemplating the development of a central bank-issued cryptocurrency. The report states that “A decline in cash usage has prompted us to think about whether at some future date a number of new attributes that are important for ensuring an efficient and robust payment system and confidence in the monetary system will be needed,” adding “If the answer is yes, a [central bank-issued digital currency (CBDC)] may be an appropriate measure.”
Norges Bank identifies three specific purposes for a central bank-issued consideration that it believes “merits further consideration: […] ensur[ing] a public and credit risk-free alternative to deposits in private banks, in addition to cash[,] function[ing] as an independent backup solution for the ordinary electronic payments systems,” and “ensur[ing] the existence of suitable legal tender as a supplement to cash.”
The report states that “It is too early to conclude whether Norges Bank should take the initiative in introducing a CBDC. The impacts of a CBDC – and the socio-economic cost-benefit analysis – will depend on the specific design. The design, in turn, will depend on the purpose of introducing a CBDC,“ adding that “A CBDC raises complex issues,” and “There is virtually no international experience to draw on.” Norges Bank states that it “will continue to issue cash as long as there is demand for it. But when cash usage declines, a CBDC can be an alternative to deposit money. The primary purpose of a CBDC is to ensure confidence in money and the monetary system.”
“Further analysis is needed to assess the purposes of a CBDC, the types of solutions that best achieve these purposes and the benefits measured against financial and other costs. This is a long-term undertaking. The aim of publishing the working group’s report is to inform the public about its work, disseminate knowledge[.] and initiate a dialogue with stakeholders,” the report states.
English Central Bank Explores Different Models for Central Bank-Issued Cryptocurrency
The Bank of England has published a working paper exploring three potential models for central bank-issued digital currencies.
The three models explore are the “Financial Institutions Access” model (FI), the “Economy-Wide Access” model (EW), and the “Financial Institutions Plus CBDC-Backed Narrow Bank Access” model (FI+). The FI model would see “CBDC access […] limited to banks and [non-bank financial institutions (FBFIs)],” whereas the EW model additionally allow “households and firms” to access CBDC. The FI+ model would see “CBDC access […] limited to banks and NBFIs,” however, “Within the NBFI sector there is at least one financial institution that acts as a narrow bank, providing a financial asset to households and firms that is fully backed by CBDC but that does not extend credit. That is, they provide households and firms with an asset that has the risk profile of central bank money, rather than a risk profile linked to the financial institution and of its borrowers.”
The report claims to “find that if the introduction of CBDC follows a set of core principles, bank funding is not necessarily reduced, credit and liquidity provision to the private sector need not contract, and the risk of a system-wide run from bank deposits to CBDC is addressed.” Said principles are that “CBDC pays an adjustable interest rate,” that “CBDC and reserves are distinct, and not convertible into each other,” “No guarantee [of] on-demand convertibility of bank deposits into CBDC at commercial banks,” and that “The central bank issues CBDC only against eligible securities.”
U.S. Federal Reserve Governor Opposed to Central Bank-Issued Digital Currencies
The Norwegian and British reports come approximately one week after U.S. Federal Reserve governor Lael Brainard expressed her opposition to the suggestion of central bank-issued cryptocurrencies at the Decoding Digital Currency Conference in San Francisco.
Governor Brainard expressed a number of concerns pertaining to central bank digital currencies, stating that “there are serious technical and operational challenges that would need to be overcome,” including “the risk of creating a global target for cyberattacks or a ready means of money laundering.”
Mrs. Brainard argued that “the issuance of central bank digital currency could have implications for retail banking beyond payments,” asserting that “If a successful central bank digital currency were to become widely used, it could become a substitute for retail banking deposits. This could restrict banks’ ability to make loans for productive economic activities and have broader macroeconomic consequences.“ The governor also claimed that “the parallel coexistence of central bank digital currency with retail banking deposits could raise the risk of runs on the banking system in times of stress.”
Governor Brainard concluded that “there is no compelling demonstrated need for a Fed-issued digital currency,” adding that “most consumers and businesses in the U.S. already make retail payments electronically using debit and credit cards, payment applications, and the automated clearinghouse network.”
What is your opinion on central bank-issued cryptocurrencies? Tell us in the comments section below!
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Neel Kashkari, the president of the Minneapolis Federal Reserve, slammed the cryptocurrency industry, saying it has become a “farce” due to unregulated chaos and escalating fraud. Kashkari made the biting remarks at Bay College in Escanaba, Michigan, on May 21, where he expressed dismay at the proliferation of scams in the nascent crypto ecosystem. “It’s … Continued
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WSJ report says Coinbase spoke to U.S. regulators about getting a banking license
The Federal Reserve has been giving cryptocurrencies and their potential impact on the economy a great deal of thought lately. Most recently, Fed Governor Lael Brainard provided a rare tilt of the Fed’s hand on digital currencies, taking more time, offering more details than usual and demonstrating the resources that the agency has dedicated to understanding … Continued
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St. Louis Federal Reserve President, James Bullard, was recently interviewed at this year’s Consensus conference in New York City. That a top US economic policy maker was in attendance is victory enough; however, he was asked his opinions on cryptocurrency going forward by CNBC Global Markets Reporter Seema Mody. He explained he found the phenomenon “interesting,” and how more cryptos being issued all time necessitates keeping an “eye” on them. Mr. Bullard also compared the use case for cryptocurrencies with that of the dollar, and whether the former posed a threat to the latter.
Federal Reserve President Attends Crypto Conference
Federal Reserve President, James Bullard, gave a presentation at this year’s giant Consensus conference in New York City. Reread that sentence. A sitting Fed policy maker thought it important enough to attend a crypto soiree. That’s news enough. But more importantly, President Bullard gave a presentation on the government’s current thinking about cryptocurrency.
In his talk, he acknowledged crypto is facilitating trade that might otherwise not occur. He couldn’t help himself by mentioning illegal activity (and we all know fiat currencies are never used in illegal activity), but he did describe decentralized money’s lean toward frictionless transactions (especially with regard to costs/fees) as being an advancement.
The Fed policy maker reserved the bulk of his comments, both in the presentation and during a post-game interview with CNBC, to talk about the problems in crypto as he sees them. One issue is simply the number of currencies being offered. The 12th St. Louis Fed President feels this over complicates matters, especially with regard to exchange rates and volatility.
Asked if cryptocurrencies pose a threat to the dollar, Mr. Bullard, 56, answered he didn’t think so. Global Markets Reporter Seema Mody, who is covering Consensus for CNBC this year, quickly followed up with a “but it could be?” The Fed President was noncommittal, choosing instead to shrug and give the pat answer about no one really knowing what the future holds. He emphasized how since its creation the US dollar has vanquished nearly all currency competition due to its being backed by the world’s strongest economy. It’s abundantly clear, Mr. Bullard suggested, people want the dollar and not crypto … at least at the moment.
Fed Coin on the Horizon?
Ms. Mody pressed Mr. Bullard about his presence at the conference, asking if this was a hint of things to come with regard to a future coin birthed by the Fed, a Fed Coin? Interestingly he didn’t dismiss the idea outwardly, and instead said they’d for sure look at the possibility, as the Fed does with many different types of financial innovations. He also assured there wasn’t any plan being hatched at the moment, no imminent Fed Coin coming. Mr. Bullard also wondered aloud what the gains would be by creating such a coin. He smiled subtly, assuring he’s keeping an “open mind.”
His comments seem to be less strident than statements issued by the St. Louis Fed on the very subject not even one month ago. “The St. Louis Federal Reserve has published an essay critically evaluating the notion of cryptocurrencies that are issued by central banks,” we detailed. “The article is highly dismissive in presenting what it describes as ‘the non-case for central bank cryptocurrencies,’ concluding that ‘a central bank will not issue cryptocurrencies in the sense of a truly decentralized and permissionless asset that allows users to remain anonymous.’”
A rather curious fact about the St. Louis Fed, one of twelve jurisdictions in the Federal Reserve system (the 8th district serves Indiana, Kentucky, Missouri, Illinois, Tennessee, Louisiana, Mississippi, Arkansas), is how it has recently become very chatty about crypto. As these pages reported back at the beginning of this year, “Aleksander Berentsen and Fabian Schär of the Federal Reserve Bank of St. Louis have recently published an article that emphasizes many of the benefits of cryptocurrencies. The article states that ‘cryptoassets are well suited to become an important asset class,’ in addition to offering praise regarding a number of the major applications associated with cryptocurrencies.”
Do you think a Fed president attending a crypto conference is meaningful? Let us know your thoughts in the comments below.
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James Bullard, who is at the helm of the St. Louis Federal Reserve Bank, is concerned that cryptocurrencies are complicating the markets. As an official of the centralized government the cryptocurrency market is designed to avoid, Bullard may have stood out at Consensus 2018, which is a blockchain technology summit hosted by CoinDesk. But that didn’t
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The San Francisco Federal Reserve released an Economic Letter suggesting that the introduction of Bitcoin futures trading directly influenced the December 2017 price decline
MIT thinks that a Federal Reserve-backed coin, a Facebook BTC takeover, or the multiplication of altcoins could be ways to take BTC down. #NEWS
MIT thinks that a Federal Reserve-backed coin, a Facebook BTC takeover, or the multiplication of altcoins could be ways to take BTC down. #NEWS
The Federal Reserve Bank of St Louis, one of 12 regional Reserve Banks that make up the United States’ central bank, has conducted a study asking some of the biggest questions in cryptocurrency today – and they may have found some real answers. Their researchers investigated the control structure of various currencies and looked into whether … Continued
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Bitcoin was created to bring back people’s control over their own hard-earned money. Perhaps no greater example exists of how we don’t currently have real influence over how our capital is being spent than banks getting bailouts from the government at taxpayer expense.
A History of Fleecing the Taxpayers
Governments all over the world have been bailing out companies for decades, if not longer. And it seems that whenever a financial crisis arises, failed businesses call on the authorities to save them. While directly giving funds or just sweetheart loans to physical companies such as car manufacturers, airlines and the like is harmful to the economy, it is usually easier for the public to accept in order to save working class jobs. Bank bailouts on the other hand are almost universally hated.
Economists see bailing out banks as creating bad incentives for executives to keep taking more critical risks, knowing that major losses will be covered by the taxpayers while outsized gains will be kept by them. And the general public objects to ‘fat cat’ bankers getting enormous sums of money due to their crony connections to politicians. This is why governments and central bankers must always declare the situation a national emergency and warn that a cleanup of the banking system might cause a complete economic collapse.
The most recent example of this process, the backlash and the futility of it, is the US’ 2008 bank bailouts. After the 2007 subprime mortgage crisis, major American financial institutions became insolvent the following year and the Bush administration came to their rescue. The Troubled Asset Relief Program (TARP), which propped up the too-big-to-fail banks with hundreds of billions of the taxpayers’ dollars, was passed with much protest both from the ideological right and the ideological left. The controversial process is credited with triggering both the Occupy Wall Street and the Tea Party movements.
Prior to 2008, the biggest modern bank bailout in the US was the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). It came about following the savings and loan crisis, and cost taxpayers an estimated $200 billion. Both events similarly led to greater control, supervision and regulation by the government of the economy.
What Can Be Worse Than a Bailout? A Bail-In
As bad as bank bailouts can be, there are now even worse ways for people to learn that they don’t have control over their own money. Bail-ins are a new concept that has been floating around in recent years, which refers to depositors taking a hit to rescue banks instead of the taxpayers. As this is a more obvious and direct confiscation of wealth, governments will try to avoid bail-ins if they can just print more fiat or take on debt.
The precedent for this was set not by some bankrupt dictatorship but by the EU member nation of Cyprus, where a bail-in was first attempted in 2013. As part of a €10 billion bailout deal with the ECB and IMF, the Cypriot government has agreed to impose a levy on on all uninsured deposits in the country’s second largest bank and up to an estimated 48% of uninsured deposits in the biggest bank in Cyprus. This incident left a scar on the psyche of many locals and only served to make them less trustful of the government and banks.
How should the bitcoin community educate more people about the non-speculative reasons to invest in the cryptocurrency? Share your thoughts in the comments section below.
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Do you agree with us that Bitcoin is the best invention since sliced bread? Thought so. That’s why we are building this online universe revolving around anything and everything Bitcoin. We have a store. And a forum. And a casino, a pool and real-time price statistics.
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Derrick J. Freeman and Steven Zeiler founded what they claim is the first crypto-only brick and mortar retail establishment in the US, the Free State Bitcoin Shoppe. Visitors pay for merchandise with cryptocurrencies like bitcoin. If they don’t have cryptocurrency, the store clerk helps them download and fund their first wallet. They checkout using an Ipad in a Square stand running New Hampshire-based free point-of-sale software Anypay. News.Bitcoin.com caught up with Mr. Freeman for an exclusive interview.
Also read: India Searches for Ethereum Over Bitcoin
Bitcoin Shoppe is Crypto-Only
Portsmouth, New Hampshire hasn’t been widely thought to be a hotbed of crypto activity. It just might be, and it probably has something to do with the Free State Project (FSP). Yale doctoral student Jason Sorens basically wrote about a secessionist movement of the most personal sort. It wound up evolving into asking 20,000 freedom-loving people to build a political force in the state of New Hampshire, the “Live Free or Die” state. “A large portion of the people who moved to New Hampshire in search of freedom are bitcoin users,” Derrick J. Freeman explained. “That’s because they know about the Federal Reserve. Once you know about that, and you know there’s an alternative, it’s pretty hard to reconcile your personal responsibility for its perpetuation.”
Mr. Freeman, a well-known figure in the FSP, continues, “Cryptocurrencies affords us the opportunity to not just withdraw our support for values we detest, but to actively support coins whose communities actively embrace certain values we share. It’s amazing, and anyone not yet benefiting from participation in these communities is missing out.”
Founded in the Summer of last year, the Free State Bitcoin Shoppe is open seven days a week. Though it’s obviously a profit-making enterprise, Mr. Freeman notes it also serves as an educational platform. “The number one thing we sell is the ‘Bitcoin 101’ class at the Blockchain Institute where people learn how to get a bitcoin wallet, how to send and receive bitcoin, and how to backup their money safely. We also sell bitcoin watches, bitcoin mugs, bitcoin pint glasses, hardware wallets, bitcoin t-shirts, bitcoin socks, bitcoin books, silver rounds, dvds, enigma machines, books about programming and economics.”
The importance of having a real-world, flesh and blood place where the curious can come and ask questions, take a test spin in this new space, is badly needed, Mr. Freeman urges. “They’ve all heard about it from the news, or a friend, coworker, or family member, and they’re curious. They want to know, ‘Is this thing real? Like, are people actually using it?’ And we get the pleasure of pointing them to our huge map on the wall with flags sticking out at every one of 22 locations that currently accept bitcoin in this town of 22,000. We designed and printed pamphlets that we encourage people to take from a box on our front door. It explains how to get a wallet (of course we recommend Bitcoin.com wallet right at the top), and a map of the World Famous Bitcoin Tour of Portsmouth (http://WorldFamousBitcoinTour.com).”
An Eager Bitcoin Evangelist
As an activist and content producer in the liberty world, Mr. Freeman received a tip in bitcoin after hosting a popular radio program, Free Talk Live. It was his introduction to the rabbit hole that is crypto. “I loved this new kind of money,” he stresses. “I loved that it was a digital balance on my screen. I liked that I had a record of all the transactions in the network. I liked that it ran like a bittorrent on my computer — always updating the ledger with all the other nodes on the network. I liked that I could participate in mining by buying some equipment and configuring it to join the network of miners. I liked that this new kind of money was being circulated among my friends. I liked that it afforded me the opportunity to use a money that wasn’t created and controlled by the Federal Reserve. I like that it empowers people like me to opt for a more peaceful world by withdrawing support for empire-building and endless wars.”
News.Bitcoin.com asked how the immediate community has received the Shoppe. “They love it. We’ve became fast friends with dozens of businesses who we’ve helped accept cryptocurrency. We’ve sponsored local theater on multiple occasions as patrons of the arts. One of our neighboring shoppes and one of Portsmouth’s most beloved stores, Pickwick’s Mercantile, gave us the idea to coin Portsmouth as ‘Bitcoin Village.’ We regularly host popular meetups where people come to level up their bitcoin knowledge and grow the network of bitcoin users and businesses. Even the local government has been warm and welcoming: a city councillor was one of our earliest customers, the police have politely checked in when they saw us moving store furniture at night, and just yesterday the parking enforcer popped into the Shoppe to let me know I’d forgotten to put my ticket on the dash. It’s that kind of quaint New England town. We love our neighbors and aim to make them proud,” Mr. Freeman responded eagerly.
Do you think crypto needs more retail stores? Let us know what you think in the comments below.
Images via Pixabay, the Free State Bitcoin Shoppe.
The president of the Federal Reserve Bank of Atlanta needs just three words to convey his opinion on investing in Bitcoin and other cryptocurrencies: “Don’t do it!” Raphael Bostic, who has led the Atlanta branch of the Fed since 2017, delivered this message on Tuesday at the Hope Global Forums annual meeting, which promotes entrepreneurship … Continued
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Bipartisan group of US lawmakers seeks crypto regulation, prompted by ‘growing popularity’ of crypto leading to ‘growing risks’. #NEWS