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Reader Asks About “Fedcoin”: Should The Fed Issue Its Own Bitcoin?

By Kurt Osterberg · On February 13, 2016

Are central banks planning to issue their own digital currencies? If so, is there anything to fear? Those are the questions at hand today as reader Ken asked “Could you post your opinion of Fedcoin?”

What is Fedcoin?

Fedcoin is a digital currency proposal that would use the same blockchain technology as Bitcoin. Every penny could be traced to someone. Unlike Bitcoin, Fedcoin would not have a limited supply.

A Newsweek opinion column by David Andolfatto addressed this question Should the Fed Issue Its Own Bitcoin?

Fed Investigating Fedcoin

David Andolfatto is Vice President of the Federal Reserve Bank of St Louis. That tells you the Fed is seriously investigating Fedcoin.

Andolfatto listed these positives of “Bitcoin”.

First, it’s monetary policy reduces the “hot potato” motive of economizing on money balances—that is, it offers the prospect of being a decent long-run store of value.

Second, anyone with access to the internet can access an account (a public/private key pair) for free—like cash, no permission is needed. The public key is like an account number and the private key is like a password. Account balances remain secure as long as the private key remains secure.

Third, like cash, no personal information is necessary to open an account, so no need to worry about securing private information.

Fourth, like cash, Bitcoin is censorship resistant—no one can prevent you from spending/receiving Bitcoin from whomever you like.

Fifth, Bitcoin can offer a greater degree of anonymity than bank deposit money, but less so than cash (unlike cash, the blockchain ledger is visible and public).

Sixth, the entire money supply (blockchain) lives on a replicated distributed ledger—it lives simultaneously everywhere—so that “sending money somewhere” means updating the ledger on all computers everywhere. There are no banks, there are no borders.

Seventh, the user cost of transferring value is relatively low.