
US $ Crypto Currency by Federal Reserve - adam222
http://nerdspace.co/617
======
edward
Central banks operate provide real-time gross settlement (RTGS) systems. This
allows transfers to settle in real time.

See [https://en.wikipedia.org/wiki/Real-
time_gross_settlement](https://en.wikipedia.org/wiki/Real-
time_gross_settlement)

Domestic banks have accounts with the central bank and can move money using
RTGS. If the central banks allowed individuals and non-bank companies to open
accounts then they could use the RTGS to transfer money instantly.

There would be no blockchain, the central bank acts as a trusted third party.
The central bank can see all transactions.

~~~
darkmighty
Exactly. In this case there's no point in being distributed. You have to trust
the central bank anyways, so just let them handle the servers instead of
wasting a colossal computing effort in verifying transactions or waiting whole
minutes versus milliseconds to confirm transactions. You also get
invulnerability to the likes of 51% attacks or "selfish mining" and ability to
revert frauds or big blunders.

But I guess this is a good example of a new tech that reminds people that the
basics are still not out of place.

I proposed a semi-centralized crypto currency with the same things in mind but
based on existing fiat some time ago:
[http://www.reddit.com/r/altcoin/comments/1t6nu0/altcoin_prop...](http://www.reddit.com/r/altcoin/comments/1t6nu0/altcoin_proposal_faircoin/)

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pyalot2
There's a couple problems with that idea.

1) It requires the US government to run the payment network. That's an
expensive and security sensitive installation. The government, by far and
large, isn't terribly good at running IT installations (see, the recent
healthcare.gov)

2) The governments like to exercise capital controls. They do that way of the
banking system. If it introduced digital $, they can't control it. Because
anybody with a wallet could receive and spend them, assuming that everybody
can create a wallet.

3) If not everybody can create wallet, i.e. the wallet needs to be
governmental registration, it puts further demands on the features of the IT
installation of the government. This isn't making it it any more likely to
happen.

4) The credit card and banking industry would feel themselves threatened.
Because, a lot of what they do would be taken over by the government, there'd
be no end of political flamewars and stalemates trying to get this trough.

5) You're assuming that the government running the payment network would
somehow, magically, be better than credit card companies. I very much doubt
that, transaction fees would probably be even higher, and reliability would
probably be pretty miserable.

~~~
rikacomet
wider problems include:

\- Recent revelations about NSA activities, make out any cryptocurrency
designed by USA, to be unsafe. It is the biggest single damage done to trust
factor of US tech industries.

\- Sooner or later, diplomatic pressure would be made upon smaller countries
to have their forex reserves in crypto currency, and sooner that pressure will
spread to bigger countries. Some will oblige, some will build walls(leading to
economic sanction---> war possibilities{one word: CHINA)

\- Then on, hit a button, all forex reserve belongs to USA.. or worst case
scenario, to someone who gets access to weakness in the cryptocurrency.
Resulting in world economic chaos.

~~~
adam222
>or worst case scenario, to someone who gets access to weakness in the
cryptocurrency. Resulting in world economic chaos.

we are talking here about the same measures and standards, taken to make sure
there are no counterfeit paper currency in the market.

~~~
rikacomet
I didn't get your reference. Can you elaborate?

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vfclists
Is someone confused here? Isn't the dollar already the digital currency of the
Federal Reserve and the international banking system? The dollar is a digital
currency pretending to be a physical currency for the naive.

~~~
wmf
Really I think the article is asking for a payment system that has Bitcoin-
like qualities (irrevocable, low or no fee, immediate settlement,
cryptographically secure, auditable) yet is denominated in USD. Something like
Dwolla or (as somebody else mentioned) a consumer version of Fedwire.

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midnitewarrior
Well, I know you said this is "up for debate", but really, any form of digital
currency issued by the Federal Reserve wouldn't be anything any consumer would
want.

The "Federal Reserve" is a federation of privately-owned banks authorized by
the US Government as the banking monopoly that is permitted to issue its
currency. The Federal Reserve is the bank that US government borrows from, and
the private banks that issue the funds to the US Government make profit off of
the loan. Excess profits (outside of legally stated limits) get returned to
the tax payers. The saying goes -- there "Federal Reserve" is as "Federal" as
"Federal Express (FedEx)".

Understanding this, the banks that make up the Federal Reserve are the banks
that issue credit cards and make money off of financial transfers. The Federal
Reserve is not going to do anything to endanger the profits of its member
banks. So while the Federal Reserve could create a crypto currency, assume it
would be laden with an oppressive fee structure, issued and collected by its
member banks. Every bank covered by the FDIC is a member bank / Federal
Reserve.

The only things consumers could get out of this is convenience. Banks are
hungry for profits, so there would be fees, there would be advanced currency
tracking (think FBI / NSA), there would be no privacy, there would be
electronic fraud that may or may not be able to be reversed.

~~~
aggronn
This is outlandish.

(1) The Federal Reserve has 12 member banks, none of which are private--
they're really just branches of the central bank. Those member banks have
shareholders consisting of local private banks. These 12 banks don't pick
monetary policy. The Federal Reserve board does. Only 1 of the 7 members of
the Federal Reserve Board can be picked from the leadership of the 12 member
banks. Since the Federal Reserve Board is what actually decides monetary
policy, its nonsensical to think of the Federal Reserve as a federation.
Because its not. Its a central bank, and has very centralized power.

(2) While banks are part shareholders in the central bank's member banks, IT
IS NOT ORGANIZED LIKE AN ACTUAL CORPORATION. They do not 'own' federal reserve
banks. They cannot sell their shares, and make no money from them (well, they
might earn meager interest). Its literally just a deposit that they make with
the Fed that entitles them to send representatives to their regional bank.
Even if each member bank was totally dominated by the will of their member
banks (which there is no incentive for this to be the case), the sum of their
influence on monetary policy is their single representative in the board of
governors (who was confirmed by congress!)

(3) The federal government does not borrow directly from the Fed. It issues
bonds to the general bond market through weekly auctions directly from the
Treasury, and the Fed buys those in the aftermarket to manipulate interest
rates. Doing this requires them to add or subtract cash from the money supply.
Obama doesn't call Bernake, say "Hey Ben, we need some money for the kitchen
we're remodeling", and get the response "Check your bank account, already
wired the money! LOL!".

There is plenty of information on the the federal reserve's website describing
exactly how its organized.

At the end of the day, if there is ANY chance of the US dollar being replaced
by another currency as the dominant currency in the US economy, the central
bank will get involved. Moreover, if bitcoin ever gets big enough to have an
actual economy that isn't just people converting to US dollar (ie, rent,
bills, and wages are paid with bitcoin), we'll have a grand opportunity to
test whether having monetary policy is actually a good thing, or if its bad.
Because if its bad, and we discover that having a central bank control the
money supply is actually a Good Idea, then consumers WILL NOT choose bitcoin.

Hopefully by then there will be some implementation by some central bank
somewhere that makes sense, so that we get all the benefits of a digital
currency without all the inflexibility of bitcoin's built in monetary policy.

------
dobbsbob
Canada is testing this [http://business.financialpost.com/2013/09/19/canadian-
mint-p...](http://business.financialpost.com/2013/09/19/canadian-mint-pushes-
ahead-in-murky-world-of-crypto-currency-with-mintchip-project/)

One bonus of having gov digital currency is quick and easy transfers avoiding
bank fees/delays and fraud of ach and wires. Another bonus is you can use
Fedcoins in a decentralized p2p exchange to trade them for other coins.

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salient
After the government trying to subvert crypto standards, what could possibly
go wrong with this idea, that would force half the world to use this instead
of the US dollar?

Nobody would trust this. Bitcoin works because people trust it, because it's
built on open source and P2P principles, so they trust it _because_ it's
"trustless". That's where most of its value comes from. People also trust the
US dollar because it's been around for so long, and nobody even thinks about
it anymore.

So yes, the Fed Reserve could come out tomorrow and say that 1 FedCoin = $1,
and dollars are gone from existence (unless you're suggesting FedCoin should
_compete_ with the dollar? But then what's the point?), all of them being
replaced by trillions of FedCoins. And the next day FedCoin would drop in
value by half, taking the US economy with it.

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netman21
I was thinking about this very idea. The Federal Reserve introduces a crypto
currency that is centrally controlled and replaces the dollar (over time).
Next, income taxes and State sales tax are eliminated and the revenue is
replaced with a transaction fee. The beuatiful thing would be that this would
give the Federal Reserve a real control over the economy. Things heating up?
twist a knob and increase the transaction fee. Recession on the horizon? Twist
it the other way and reduce the transaction fee. So, I looked into what
transaction percentage would be required to replace current government
receipts. Well, the US takes in $10 Trillion a year. Since GDP is only $15
Trillion the whole idea blows up. A 66% transaction fee just won't work. (I
know that GDP is not the same as Total of All Transactions. Is it velocity x
GDP?)

~~~
ceejayoz
> Well, the US takes in $10 Trillion a year.

No, it doesn't. Federal revenue runs about 2.5-3.0 trillion.

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lucb1e
Any currency controlled by any one individual is either (1) used by only one
individual, or (2) not a crypto currency.

As for making the USD easier to use on the web, I think we call this system
PayPal. Except it should be less evil.

~~~
nhaehnle
There have been proposals for anonymous payment that relied on a bank issuing
tokens. That is certainly a kind of "crypto currency" despite the central
control.

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Canada
Well, the Fed doesn't create interest free money so doing this would be quite
a radical change in policy. But it's an interesting idea. The fed could create
a new block chain and offer to buy any coins mined at a fixed rate. In this
manner it could create digital cash that it wouldn't have to do much to
manage. Just being there to guarantee liquidity would make that type of coin
have value.

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nly
if you want a centrally managed cryptocurrency and can tolerate deferring
double spend detection (i.e. you have an overdraft and debt collection system)
then there are better cryptocash solutions than bitcoin that don't require a
block chain and provide untraceable transactions and complete anonymity. The
only worthwhile innovation in bitcoin in fact is its use of a block chain to
eliminate the possibility of monetary policy manipulation.

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Spooky23
The government doesn't want to make money transfer and settlement easier. Why
do you think the highest denomination of currency is $100?

We literally ship jumbo-jets full of $100 bills abroad so that foreign banks
can maintain adequate reserves. If we cared about this, we'd print $10,000
bills. The system as it stands funnels movement of large amounts of money,
which eases tax collection and other enforcement measures.

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coderzach
If it's centrally controlled that defeats the purpose of it being a crypto
currency.

~~~
adam222
the basic idea, is not around cryptography, the idea is to have, a truly
digital currency, regardless of how it is 'created'. I just want to eliminate
Card companies, and they were not made for Internet either. they are cool for
offline shopping as you don't have to carry cash.

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dablweb
The very notion of a secure crypto-currency controlled by the Fed is an
oxymoron.

