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Federal Reserve Chairman recognises crypto benefits

By Lawrence Gash

Powell discusses development of a digital US dollar

Jerome Powell

Central bankers are not usually the friends of those in the crypto community. Indeed, from its inception during the global financial crisis of 2008/09 Bitcoin (BTC), the world’s leading cryptocurrency, set out to challenge central bank control.

Nonetheless, Jerome Powell the chairman of the Federal Reserve, arguably the most important central banker in the world, has been lauded by the crypto community in the past 24 hours for recognising the value of privacy when it comes to digital currency transactions.

Testifying before the House Financial Services committee Powell discussed the development of a digital U.S. dollar (USD) and observed: "A ledger where you know everybody’s payments is not something that would be particularly attractive in the context of the US.”

In the past two years, particularly following the attempt of the Facebook-led Libra Association to develop a global stablecoin, central banks have been forced to take a greater interest in the development of digital currencies.

While some nations such as Venezuela have made fledgling attempts, China has vowed to become the first major economy to introduce a digital version of their currency. With President Xi Jinping calling on the Chinese people to “embrace the opportunity” of blockchain technology a digital yuan could become a reality within the next two years.

Other developed nations have made smaller but nevertheless significant steps. The central banks of the euro zone, the United Kingdom, Switzerland, Sweden, Canada and Japan have agreed to share information regarding the development of Central Bank Digital Currencies (CBDC) and will meet on the side of April’s IMF summit to discuss digital assets yet further.

While Powell’s comments will be welcomed by the crypto community, a volte face in attitudes towards central banks is unlikely. Indeed, fears have grown in recent years that the original decentralised aims of cryptos could be undermined by central banks co-opting the technology underlying the crypto revolution and actually increase state control over individuals.

An internal presentation to the head of the Bank of Canada and its board of directors argued that personal details gathered from those using a digital version of the Canadian dollar “could be shared with police or tax authorities”.

It remains to be seen whether the Fed will err on the side of control or privacy. Powell’s recent comments can be said to echo a 2018 report from the Federal Reserve Bank of St. Louis, which stated:

“History and current political reality show that, on the one hand, governments can be bad actors and, on the other hand, some citizens can be bad actors. The former justifies an anonymous currency to protect citizens from bad governments, while the latter calls for transparency of all payments. The reality is in between, and for that reason we welcome anonymous cryptocurrencies but also disagree with the view that the government should provide one.”

FURTHER READING: Former CFTC chair to head controversial futures exchange

FURTHER READING: Central banks to discuss digital currency development

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