Category Archives: Fed

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Global State Bank Crypto Adoption Still in Its Infancy

With banks increasingly switching on to the current global interest in cryptocurrencies, digital currencies are now being utilized by the same institutions they were designed to subvert, writes Cointelegraph.

More and more banks around the world see blockchain as a panacea to banking issues, all long overdue for improvement and update. They are realizing that, due to today’s already digitalized banking, which has changed the nature of payment and storage of monies, the technology behind Bitcoin clearly has a place within global financial systems.

Only a fraction of money is paper money bills in circulation, and current digital systems lack speed, stability and security. This, coupled with customer demand, as in the case of Goldman Sachs’s adoption of a digital dollar recently, is driving many nations to consider or actively support central bank cryptocurrency.

Governments and central banks from India, Japan, Canada, Russia, Switzerland to Singapore and the Marshall Islands are all currently looking into a government-backed digital currency. Several other governments, including China, Estonia, and Iran, have discussed plans for their own digital currency. Of these, the Marshall Islands have taken one step further and plan to issue its own cryptocurrency that will be circulated as legal tender along with the US dollar.

Singapore has project UBIN and the Bank of Canada has Project Jasper, while the United States is toying with the idea of a FedCoin. Last year, in the Middle East, the Bank of Israel was considering a digital Shekel.

In Sweden, many retail stores no longer accept paper money and some Swedish bank branches no longer disburse or collect cash. In response, the Riksbank has a current project in progress examining the viability of an e-Krona for retail payments.

Crypto-friendly Switzerland is looking towards the viability of a Swiss National Bank (SNB) e-Franc, but has little support within the Swiss government. The often controversial Venezuelan Petro, seen as both an economy saver and possible sanction breaker, was launched in February 2018 to supplement the plummeting bolivar fuerte, reportedly backed by the nation’s oil reserves.

In Russia, deputy minister of economic development Oleg Fomichev suggested the proposed CryptoRuble, conceived in a climate of heavy anti-crypto sentiments regarding adoption by private companies but nonetheless in state hands, becoming another powerful sanction breaker in the current political climate. Russian president Vladimir Putin stated that the Stone Age has not ended because humanity has run out of stones, but because new technologies have appeared.

“If if central banks were to back cryptocurrencies, the central banks would be better positioned to predict money demand and therefore adjust supply accordingly,” writes Mohamed Damak of S and P Global, adding, “It is still too early to tell in which direction this instruments will move.”

Alternatively, he writes, “If cryptocurrencies were to take off and become an effective currency issued in a decentralized manner, the impact on monetary policy implementation would be deep, since central banks might lose their ability to control the money supply.”

It is a view more closely aligned to Satoshi Nakamoto’s original vision.

 

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Ex-Governor Says Fed Digital Currency Needs “Serious Consideration”

Kevin Warsh, former Federal Reserve (Fed) Governor has suggested that the creation of a “FedCoin” needs “serious consideration,” reports the New York Times.

The concept of a cryptocurrency called FedCoin has provoked interest over past years, based on an idea proposed in 2014 by blogger JP Koning. Since then the idea has been much discussed, and the term is now generically used to describe a Central Bank digital currency which could be overseen by the Federal Reserve, IMF, and the World Bank.

Warsh wants to bring legal activities into a “legal coin,” suggesting that digital currency is still thought of by many banks as a risk, despite major banks beginning to warm up to its adoption, such as Goldman Sachs’ recent announcement that they would start trading in bitcoin futures in the next two months.

“Most central banks have a view that these crypto-assets are clever, like guys in the garage did it and it’s kind of cool, or risky,” referring to recent frauds and coin volatility. Warsh feels that central banks should treat digital currencies as more than a novelty if people see it as the future.

Chairman of the Federal Reserve Jerome Powell, has already made some positive gestures towards blockchain — the technology behind digital currency, since his appointment earlier this year saying, ” We actually look at blockchain as something that may have significant applications in the wholesale payments part of the economy.” He went on to suggest that he could see cryptocurrencies as a “reliable unit of account” rather than just a “speculative asset,” given that the next generation of cryptocurrencies look more like money and had less volatility.

Major central banks now experimenting with digital currencies and/or blockchain are growing, including The Bank of England, the Banque de France, the People’s Bank of China, the Bank of Canada, the Central Bank of Russia and the Dutch central bank.

It remains to be seen if the Federal Reserve in the US  joins these forerunners that are currently all considering the merits and the pitfalls of issuing their own blockchain-based digital currency.

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Image source: Pixabay (TheDigitalArtist, CC0 License)  

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Goldman Sachs Announces Trading of Bitcoin Futures

Wall Street giant Goldman Sachs has announced it has plans to use its own money to trade in Bitcoin futures, after a decision by the investment bank’s board of directors, according to the New York Times.

This is a major turn in direction, given the bank’s often scathing remarks about the validity of cryptocurrency. It decided on the turnaround after requests from its customers who wanted to trade in Bitcoin.

Goldman Sachs will begin using its own money to trade Bitcoin futures contracts on behalf of clients in the next few weeks, although an exact date has not been set. It will trade using its own creation, known as a non-deliverable forward.

Justin Schmidt, its newly-appointed digital asset trader, wants to trade ‘physical’ Bitcoin, but the bank will need to gain approval from the Federal Reserve before it can implement its trading desk. The New York Times reports that one issue which will need resolving is to find a way to address the risk of hacking, a problem that has befallen other Bitcoin exchanges.

According to Schmidt, the current standards for Wall Street digital currency trading as yet have not been met. Also, it does not appear that the bank is embracing the new project with huge enthusiasm, perhaps a result of Wall Street’s past skepticism. Jamie Dimon, the chief executive of JPMorgan Chase once called Bitcoin a “fraud” and many banks have referred to a Bitcoin speculative “bubble”.

However, Goldman Sachs executive Rana Yared concluding that Bitcoin was not a fraud, saying she was clear about what the bank was doing:

“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Yared said. “For almost every person involved, there has been personal skepticism brought to the table.”

Goldman Sachs has said that it has no plans to initially buy and sell Bitcoin itself but a team is looking into the possibility providing it can gain regulatory approval and then work out a plan for eliminating risk. There is a general sense that the move by the bank may lend more legitimacy to cryptocurrency as a tradeable asset.

image source: https://pixabay.com/en/dices-over-newspaper-profit-2656028/ – freeGraphic Today

 

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