The Fed and Crypto: Back to Basics

Could the announcement that the Federal Reserve is weighing ‘the pros and cons’ of issuing a ‘digital currency’ be a chance to move to center stage the question of monetary reform?

Karolina Grabowska via Pexels.com
Modern forms of currency, including gold-colored representations of Bitcoin. Karolina Grabowska via Pexels.com

Could the announcement that the Federal Reserve is weighing “the pros and cons” of issuing a “digital currency” be a chance to move to center stage the question of monetary reform? That is our optimistic interpretation of the discussion paper issued this afternoon by the central bank. For it will soon be confronted with the question of how a digital dollar might, or might not, be defined — and who defines it.

The way the Federal Reserve Board is retailing the demarche is that the paper itself “does not favor any policy outcome.” Rather, the idea, however novel, is to solicit comment from the public. It calls the paper “the first step in a discussion of whether and how a central bank digital currency could improve the safe and effective domestic payments system.” We find that less than fully candid.

More likely the Fed is fretful about the greenback getting eclipsed by the tide of privately issued cryptocurrencies. It observes a “wave of new private-sector financial products,” including “digital wallets, mobile payment apps,” and other “new digital assets.” The quoted value of the total amount of crypto in existence reached $3 trillion in November, Time reports, nearly three times the $1.2 trillion in American currency now circulating.

The Fed had barely issued its press release today than it was promptly met with the pesky question of the confounded Constitution. The Wall Street Journal reports that some banks “have already signaled they don’t believe the central bank has the legal authority to issue a digital currency without authorization from Congress.” Then again also, too, where does Congress gain the authority, if it has any, to issue crypto?

That’s a constitutional question and an open one too. We’ve long nursed doubts that Congress has the power to make anything other than gold or silver coin legal tender or to start issuing reserve notes for dollars that are not defined as a specified amount of specie. We see little but ill effects from America’s plunge into the age of fiat money, during which the value of our dollar has plunged 98% to an 1,840th of an ounce of gold. 

America was five years into the age of fiat currencies when, in 1976, Friedrich Hayek brought out his immortal monograph “The Denationalization of Money.” In it he came out in favor of the establishment of privately issued money. His idea led Ron Paul and others to nurse in Congress the Free Competition in Currency Act. It would have ended the legal tender status of government scrip and opened our system to private money.

Plus, too, it would have ended all taxation arising from the spending of gold or silver. Such monetary reform measures, have, for more than 50 years now, been met in Washington with condescension, hostility, or indifference. Which is why we’d like to think the coming debate over crypto could be the beginning of a more open-minded approach to the premier question of our time, the nature of the dollar itself. 


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