At the November fintech festival held in Singapore, Christine Lagarde, director of the International Monetary Fund, spoke positively about the idea of creating cryptocurrencies by central banks (CBDCs - Central Bank Digital Currencies). At the event, she highlighted some of the benefits of CBDC, which include financial inclusion, privacy and security.
Despite this, some of the other employees of the Federal Reserve Bank of St. Louis (Fed) do not share Lagarde's enthusiasm for cryptocurrencies. Over the past two years, Fed researchers have not looked at cryptocurrencies or national cryptocurrencies.
Fed researchers Fabian Schar and Alexander Berentsen wrote the following in February:
The main characteristic of cryptocurrencies is their incompatibility with central banks. No reputable central bank would ever issue a digital currency. The risk to reputation is too high.
They further added that compliance with strict KYC and AML laws is a critical measure to prevent fraud, drug trafficking and terrorist financing.
Researchers have indicated that the cryptocurrency created by the central bank will be centralized, therefore it will not be a cryptocurrency, but simply an electronic form of money. They emphasized that calling a CBDC a cryptocurrency would be incorrect.
If the decentralization of a cryptocurrency is taken away, there will be little left of it. Centralized digital money issued by a central bank is electronic central bank money. It is worth mentioning that the technology for issuing centralized virtual money appeared long before the blockchain.
Due to the decentralized nature of cryptocurrencies, there is no need for a single institution to manage the system. Bitcoin, for example, has a built-in issuance mechanism and is designed to be transparent, neutral, reliable and secure as it provides a high level of privacy.
Fed researchers have already realized that digital currencies provide services that a central bank or government cannot provide. They conclude:
This is still a very young technology and there are many risks associated with it. Overall, we believe that the idea of creating “Fedcoin”, or any other central bank cryptocurrency, is simply naive.
According to atozmarkets.com
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