Cryptocurrencies are based on blockchain technology that allows for de-centralized peer-to-peer transactions to take place outside the government-controlled banking system.

Backers of cryptocurrencies such as Bitcoin tout their privacy advantages and resistance to inflation due to their strictly limited quantities.

But what if this free-market innovation were co-opted to achieve opposite ends – centralized tracking of every transaction with no possibility of escaping digital devaluations?

That’s what some central bankers are ultimately aiming for by replacing paper cash with their own digitized, monopolized currencies.

Federal Reserve Officials Are Eager to Follow China’s Authoritarian Lead

Not surprisingly, authoritarian regimes such as Venezuela and China are leading the way in rolling out their own cryptocurrencies. But the U.S. may not be far behind.

Consider what Federal Reserve Governor Lael Brainard said at a recent conference hosted by Stanford University: “By transforming payments, digitalization has the potential to deliver greater value and convenience at lower cost.”

These are selling points for Bitcoin. But Brainard clearly isn’t a fan of this and other cryptos gaining wider use in the free-market. “Some of the new players are outside the financial system’s regulatory guardrails, and their new currencies could pose challenges in areas such as illicit finance, privacy, financial stability and monetary policy transmission,” she said.

Her solution? Centralization.

Brainard noted that the Federal Reserve is “conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC (central bank digital currency).”

Fed chairman Jerome Powell has also taken a keen interest in the concept of central bank digital currency – i.e., Fedcoin.

During testimony before Congress earlier this month, Powell noted that “every major central bank is currently taking a deep look" at cryptocurrencies, adding, “I think it's very much incumbent on us and other central banks to understand the costs and benefits and trade-offs associated with a possible digital currency.”

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