One of the main gripes by skeptics with bitcoin is its volatility, next to the fact that the “issuer” is not controlled by regular democratic structures.
By linking the bitcoin to a fiat currency both hesitations can be mitigated. The idea to link crypto-currencies to fiat currencies by central banks is not new; see Mintchip which was an initiative of the Canadian Mint.
Two interesting reads:
J.P. Koning via Moneyness suggest to introduce the Fedcoin:
While bitcoin has many useful features, these are all overshadowed by the fact that its price is too damn volatile for it to be be taken seriously as an exchange medium. This volatility arises because bitcoin lacks a fundamental value, or anchor, a point that I’ve written about many times in the past. However, there is one way to fix the crypto volatility problem…
Blogging on a personal note David Andelfatto via MacroMania: Fedcoin: On the Desirability of a Government Cryptocurrency:
Fedcoin should in no way be construed as a backdoor attempt to legislate competing crypto-currencies out of existence. The purpose of Fedcoin is to compete with other crypto-currencies–to provide a property that no other crypto-currency can offer (guaranteed exchange rate stability with the USD). Adopting Fedcoin means accepting the monetary policy that supports it. To the extent that people are uncomfortable with Fed monetary policy, they may want to trust their money (if not their wealth) with alternative protocols. People should be (and are) free to do so.
What I find relevant is that now the FED seems interested. While visiting the CSFI panel on “Digital currencies – let a thousand flowers bloom?“ 26 November 2014 in London I noticed Robleh Ali, who leads the Bank of England’s work on digital currencies was pretty bullish on the relevance of crypto-currencies and especially the bitcoin protocol for Central banks in regard to money issuing and as mechanism for payments exchange between all actors in the interconnected world.
Looking at the general attitude towards Bitcoin and its regulations in the USA I would not be surprised at all if the FEDcoin will be issued within 5 years.
Will the ECB one day issue ECBcoins too? If so we will most probably also see BoEcoins too… (My bet: first FEDcoin, then BoEcoin and then ECBcoin)
Update 26 feb 2015:
Talking about smoke and fire:
Bitcoin could revolutionise payments to the same extent that the internet changed the way we access information, the Bank of England has said, as it considers the possibility of backing its own digital currency.
Update 3 feb 2015:
And this is why I think ECB comes trailing behind: ECB published a new paper on virtual currencies “Virtual currency schemes – a further analysis“. As if they did not take into account the developments of the last two years.
“close to zero discussion of the many non-currency uses for blockchain technology now being developed,” and the report “hardly addressed the notion, widely discussed in both crytpocurrency and financial circles, that digital currencies could play a back-office role in the financial system even if they are shunned by mainstream consumers and businesses.”
Update 17 February 2015: Robert Sams suggests that there are bigger implications for the financial system when introducing FEDCoin, writing via Finextra: Fed researcher sets out vision for government cryptocurrency.:
“Fedcoin would be better than credit than US Treasury Bills. Why would anyone use bank depo (and it’s creaky array of payment systems like ACH and Swift) given such an alternative?” (emphasis RPD)