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Should Federal Reserve have role in cryptocurrency?

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Editor’s note: This story originally was published by Real Clear Markets.]

By Eric Grover
Real Clear Markets

The Fed is America’s central bank, paramount financial-system regulator, and a payments operator. It’s studying and socializing developing a general-purpose central bank digital currency (CBDC). As a general proposition the Fed and government shouldn’t undertake payment activities unless there’s a significant problem that the private sector is unable to adequately address. There is, however, no compelling need a Fed CBDC would address. And, if there’s demand, private-sector banks and payment systems are more than capable of providing digital dollars.

The U.S. payments system is already highly efficient and the most competitive and innovative in the world. Banks transact in central-bank money. Federal Reserve notes (cash) too are central-bank money – Fed liabilities. But American consumers and businesses rely primarily on electronic commercial-bank money.

CBDC advocates such as Fed governor Lael Brainard contend it would be safer than private alternatives, increase financial inclusion, the ability to disburse relief and welfare payments, prevent foreign CBDCs from undermining King Dollar, and promote innovation and competition in payments.

The leading private-sector alternative is stablecoins -digital tokens, issued by banks, perhaps with partners, backed by DDAs, loans, and securities. They’d be regulated. Moreover, given $250,000 in FDIC insurance they shouldn’t be riskier than central-bank money.

The percentage of unbanked households in America is small and declining.

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