Tell me you don’t understand cryptocurrency without telling me you don’t understand…
To wit, Federal Reserve Chairman Jerome Powell’s recent comment in a congressional committee meeting: “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies, if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favor.”
Lots to unpack here…
I know Powell is a smart guy. He can’t really believe what he said because it’s so wrong on so many levels. So, I tend to believe this is just more governmental gaslighting. Tell the victim enough times the lie you want them to believe…and soon enough the victim (that’s us, the American public) think the lie is truth.
To be clear about this: A digital dollar does not—and 100% never will—negate the need for crypto.
That’s like saying professional football negates the need for Netflix. They’re both “entertainment,” sure, but it’s not like the existence of Monday Night Football means I don’t want to watch Black Mirror (a fab Netflix anthology series, by the by, hinting at where society is headed technologically).
See, what Powell either doesn’t know or is conveniently ignoring for gaslighting purposes is that the dollar will never serve as anything other than a medium of exchange or an asset on which to earn interest income (and I use that phrase “earn interest income” quite loosely, given the minuscule interest available on dollars today).
The dollar will never be a tool for supply-chain management. It will never be a tool for governing a blockchain. It will never be a network atop which are built scads of consumer and business services. It will only and forever be a fiat currency.
I’ll go back to a column I wrote a couple weeks ago that highlighted a cryptocurrency known as VeChain. (If you missed that article, you can read it here.)
Global companies including Walmart, BMW, fashion retailer H&M, high-end consumer goods maker LVMH, and scores of others are partnering with VeChain for supply-chain management, to thwart global piracy of consumer goods (which protects consumers and companies), and to track and trace foods and pharma to help eradicate tampering and spoilage.
More than one-third of all global deaths annually spring from foodborne illness, according to a 2015 World Health Organization report. In the U.S. alone, the CDC estimates that 1 in every 6 Americans (48 million of us) get sick each year because of foodborne disease.
Is Chairman Powell saying that with a digital dollar there’s no need for a crypto like VeChain, despite the clear benefits it brings to society and business? Is he saying a digital dollar can do the same thing (it absolutely cannot, by the way)? Are crypto naysayers who agree with Powell saying government will ultimately ban a crypto like VeChain? Because it poses what threat?
This is what I mean when I say “tell me you don’t understand cryptocurrency without telling me you don’t understand…”
Now, let’s move onto the stablecoin portion of Powell’s comment.
I can certainly see the challenges that stablecoins might have in a digital dollar world. (By the way, if you’re unfamiliar, a stablecoin is a cryptocurrency which maintains stability by tightly shadowing the dollar—or euro, or yen, or pound, etc.)
In theory, one could ask: Why own a stablecoin that reflects the value of a dollar when you can own the digital dollar itself?
That answer isn’t as clear-cut as Powell makes it out to be.
Right now, stablecoins are huge players in the decentralized finance space (if you want a good primer on DeFi, see my special report on the topic available to subscribers of our monthly Global Intelligence Letter). Because of the way crypto-banks work, stablecoin deposits generate substantial returns of as much as 12.68% per year, depending on which crypto-bank you use.
Will the Fed allow the digital dollar to be used the same way?
Hundreds of billions of dollars would stream out of traditional banks, destabilizing the financial industry. So, likely, some role remains for stablecoins that operate within the DeFi space.
Moreover, there’s the issue of privacy.
A digi-dollar will be a centralized currency directly controlled by the Federal Reserve. The Fed, thus, will see exactly where dollars are earned and where they’re spent. That raises troubling privacy concerns, as I’ve mentioned in previous dispatches.
In a digi-dollar world, we will quite likely see a trend whereby consumers convert Uncle Sam’s e-dollars into a stablecoin. Most likely, that will happen through some kind of privacy function such as that offered by Blank Wallet, which hides ownership of digital assets through a “mixing” function. (That’s not necessarily an endorsement of Blank Wallet or a recommendation for Blank Wallet’s digital tokens; it’s simply an example of the financial world that will emerge this decade.)
Then there’s the fact that e-dollars don’t change the Fed’s modus operandi. The arbiter of America’s currency will continue to print and print and print and print dollars from now until the end of the dollar. I’m not being cynical when I say it’s the only option for a government that abuses its currency and its economic status.
A digital dollar administered by the Fed simply makes the process of creating ever-more money a bit easier.
As such, a new class of stablecoins is already emerging that are algorithmic, meaning they dynamically adjust to supply/demand to maintain a stable level. In the near future, that stability may not be measured against the value of a dollar, but rather the value of a basket of major currencies, or some other consumer-friendly metric like, maybe, even inflation itself.
My point here at the end is that to presume a digital dollar obviates the need for all crypto—and stablecoins in particular—means that the person offering up such thoughts either doesn’t understand the breadth of services offered across the cryptosphere…
Or they’re gaslighting the public.