FED Thoughts on Prudent Innovation in the Payment System

[presence]

While these digital currencies may not pose major concerns at their current levels of use,
more serious financial stability issues may result if they achieve wide-scale usage.

https://www.federalreserve.gov/newse...s20171130a.htm

[ClaytonB]

That snippet sounds like a threat...

[ClaytonB]

OK, just finished reading it. Brace yourselves for the propaganda...

we should be vigilant in balancing the benefits of innovation with the safe and reliable operation of systems and critical activities.

The propagandist is always a proponent of "balance", "moderation" and "safety".

new market participants attracted by lower barriers to entry may introduce new and unknown risks in the payment system

Translation: You're not part of our club. Until we bring you into the fold, you're just introducing "new and unknown risks" to the way things work around here

because striking the right balance takes time, genuine innovation in payment systems over history has often been measured in decades, not years

Translation: Bitcoin might be a good idea if we can control it. It will probably take us a long time to figure out how to control it so slow the f#@& down!

we should separate the concept of digital currencies from the innovative new technologies that they have employed to transfer assets

Translation: A blockchain used to transfer dollar balances (e.g. Ripple) might be interesting (as long as we can continue to print money and inject it into that blockchain). But a blockchain that conveys a novel unit of money that directly competes with the US dollar and the global fiat monetary regime is not welcome. We're going to paint it out as reckless and introducing "new and unknown risks" into the system.

Today, the vast majority of our payments by volume and value are processed by regulated financial institutions.

Translation: We might be interested in a regulated blockchain. (Surprise!)

the "currency" or asset at the center of some of these systems is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all

Ironically, this perfectly describes the USD...

private-sector banks and certainly non-banks can have a hard time meeting large-scale demands for extra liquidity at the very time when their balance sheets may be in question. Moreover, this inability to meet the demand for extra liquidity can have spillover effects to other areas of the financial system.

Translation: We can't print Bitcoins. Ergo, the world will end if banks start offering Bitcoin accounts because we can't print Bitcoins!

Congress ultimately introduced both a central bank and deposit insurance programs to help regulate fluctuations in the supply of liquidity in order to keep prices stable print money (FTFY, Fedster, you're welcome)

it is not clear how a private digital currency at the center of a large-scale payment system would behave, or whether the payment system would be able to function, in times of stress.

Translation: We can't print Bitcoin!! Is this thing on? Is nobody getting this?!??

some have argued that central banks should begin to issue their own digital currency as a 21st century analogue to paper currency

... but we don't like this idea, either, because a blockchain is completely public so every time we inject money into the economy, people would be able to account for all of it... no more obfuscated money-supply measures, no more superdollars going to CIA black operations. That would be, like, a major party foul, yo.

Prudent Innovation

Oh yes, the propagandist is always in favor of prudence. Forgot to mention that one.

Privately developed digital currencies as currently configured would raise concerns about the effect on financial stability if they take on more prominence in the payments and overall financial system.

Translation: Bitcoin breaks the inflationary central-bank narrative. If people can use Bitcoin 24x7 for secure, instant payments anywhere, with individual control of their assets, they might start to wonder why we ever needed a central bank in the first place. Oh, and in case we forgot to mention it WE CAN'T PRINT BITCOINS!!!!111one one one*(*!(*)*$(*OMFGWE'REALLGONNADIEEEEE!!!!!!!!!!!

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Anyway, this was a fascinating peek inside the mindset at the Fed. Talk about aloof. The tone of the speech is just dripping with caprice. Based on this, I think they actually don't realize just how much trouble they're really in. If Lightning Networks come online during 2018... that's going to rock their world.