Fedcoin to the Rescue?
Listen to the Audio Mises Wire version of this article.
It could take several years. But “Fedcoin'' is on its way and soon will be our reality. The question is: Will Fedcoin make our lives easier or just the Fed’s?
The Federal Reserve Bank of Boston is currently working with Massachusetts Institute of Technology (MIT) on the project, with the first step expected to be revealed for the fall, as explained in the Wall Street Journal on Wednesday. We’ve been offered some details as to the direction it seems to be aiming, drawing similarities to private cryptocurrencies without the mining costs:
The Fed staffers say their efforts are mindful of private offerings but don’t seek to replicate them. For instance, the creation of Fed digital dollars wouldn’t mimic the energy intensive mining system seen in some private offerings …
Should Fedcoin require no mining, create faster transmission, have less expensive transaction fees and provide more security over existing USD, it will quickly gain widespread acceptance.
If mandated by Congress, the Fed could substantially replace most US dollars with the new digital dollar. After accounting for US government debt levels, a large percentage held by government entities and the Fed itself, the Fed could hold the supply of all Fedcoins constant, indefinitely. A new “gold standard” would be achieved, one requiring no gold.
As Rothbard said, there is no “gold fetish.” The purpose of the gold standard was not to get rich from an appreciation in price; rather, the idea was to ensure money could not be created without substantive backing.
Of course, the idea of a return to a gold standard sounds nothing short of science fiction anyway. Instead, this is what we are to expect, as another Wall Street Journal article explains:
These Fed “digital dollar” accounts would be set up as a way to speed payments to households that need support.
This was supported by an economics professor from Dartmouth, Andrew Levin, who said:
Fed accounts “would be a very significant improvement” in getting money speedily to those who need it most …
Unfortunately, from the early looks of it, Fedcoins will be used for fast expansionary capabilities, to give to those who are deemed worthy of government support.
If the USD was held at a constant supply, there would be no risk of hyperinflation, no boom and busts. There would be far less malinvestments, such as trillions spent on companies buying back their own shares. As for “the people,” rather than watch their purchasing power erode year after year, the cost of living would go down. They could actually accumulate savings.
Contrast this to the worldwide hyperinflation we’ve seen, yet ignored, for generations. Consider the status quo America, where government proposes trillion-dollar stimulus bills every other month, phrases like “debt doesn’t matter” have been normalized, all endorsed by the Federal Reserve System, which spends billions of dollars in salaries for economic planning with ideas ranging from antiquated to flat out “half-truths,” for perpetual balance sheet expansion.
The launch of a new currency gives us an opportunity to start over, to a certain degree, where we can learn from the past to build a better future.
True, the notion of holding the money supply constant is a foreign concept to most. That’s only because we’ve lost a fair bit of knowledge and economic history over the years. But just because the gold standard is not widely understood does not mean it’s not a viable solution.
If Fedcoin offers a choice between inevitable destruction (from exponential increases to the money supply) versus an unknown future under honest money, the choice shouldn't be difficult. Sadly, it seems nearly impossible to convince central planners that sound money is a better path forward. Unless there is a dramatic shift in society and the Fed’s expansionary monetary policies are reigned in, the digital dollar will be destined to expand simultaneously, if not at a quicker pace than the existing US dollar; and the opportunity for real societal change will be lost.