One of the most pressing arguments for Fedcoin seems to be the Federal Re- serve’s desire to stabilize cryptocurrency as a whole by connecting it directly to physical money.
This link would not need to be voluntary either as the new Fedcoin would likely be optional at first but eventually, it would be harder and harder to find physical money in use anywhere.
Russia: Russia experienced a serious change of heart when it comes to cryptocurrencies in 2017. They announced that cryptocurrency use was legalized after a statement in 2016 indicated that those who used the digital currency could face jail time.
The reason behind this abrupt 180 seems to stem from Russia’s currently ongoing problem with corruption in its banking sector. Since 2014, the Russian economy has been under extreme strain due to a decrease in oil prices combined with foreign sanctions that have extremely curtailed foreign investment.
This, in turn, has led to heightened costs when it comes to accessing money which has led to a decline in the banking sector. This downturn has come during a serious push by the Russian Central Bank to combat corruption at all levels amidst fears that many banks have been removing capital from the country via complex money-laundering schemes.
As of summer 2017, more than one hundred banks have been closed in the past three years with nearly that many being expected to close by 2019. This has been a serious financial drain on the country to the tune of more than $50 billion so far.
This process has also brought to light concerns about liquidity for the country as a whole and the feeling among analysts is that the Central Bank needs to tread carefully, or risk provoking a crisis of epic magnitude; thus, the change in cryptocurrency policy.
As an added bonus, an increased focus on digital currencies would decrease the importance of the interpersonal relationship between region administrators, local businesses, and banks which will ideally decrease corruption levels as well.
The current system of credit in Russia is practically opaque to the point that Central Bank authorities often don’t even know who is involved in the regional banking system and smaller banks are essentially autonomous.
This problem apparently hasn’t been solved by the bank closing spree and fraud is still rampant which is why the Russian government has been experimenting with a variety of technical applications designed to make it easier for them to identify transactions in real-time.
The use of a variation of the Fedcoin is not what the national government is currently interested in, however, and they currently have their attention focused on blockchain technology in general.
Specifically, they are interested in the ease with which it allows individual transactions to be tracked. It is currently unclear if Russia is planning to adapt the existing Bitcoin blockchain for its own ends or if it is planning on creating its own via new legislation.
On the other hand, it may be planning to make use of the existing platform for a time while allowing its own banks to develop their own system or take a closer look at the system as a means of better understanding how blockchain can help to mitigate their financial woes.
It is also currently unclear if the leadership in Moscow is going to support or fight against these changes, though the announced change in cryptocurrency policy gives strong indications of the former as opposed to the latter.
China: Once again, China proves that it is at the forefront of the cryptocurrency revolution as they announced in June of 2017 that the People’s Bank of China created the first prototype of its own digital currency that has the ability to scale seamlessly based on the number of transactions that take place in a day.
While the exact details are not clear, speeches and research papers that have been released on the topic apparently indicate that the bank is planning to release the cryptocurrency to the public at the same time as the renminbi, though no official timetable is available for when exactly that might be.
Despite the lack of a firm rollout date, the cryptocurrency has already been tested via transactions between the People’s Bank and several of the country’s leading commercial banks.
This testing is a significant step for the idea of officially sanctioned cryptocurrencies and shows that China is extremely committed to exploring the logistical, technical, and economic challenges involved in developing its own digital currency which is sure to have far-reaching implications for the global financial system and its economy in particular.
This is due to the fact that a digital fiat currency, a cryptocurrency that is backed by a central bank and essentially has the same status as a banknote, would serve to dramatically lower the transaction costs associated with all financial transactions which would go a long way towards making financial services more widely available to the parts of the world that do not currently have access to these services.
It would also mark a significant step forward for China as a whole as there are millions there who still lack the types of banking services that those many countries take for granted.
Perhaps more important to the Chinese government than improving its people’s access to these services is the fact that a centralized cryptocurrency would give them more control over the types of digital transactions that have become extremely popular in China over the past few years.
Additionally, a centralized digital currency would be easier to track which would make it easier for the government to crackdown on corruption as well. Also of interest to policymakers, this type of digital system would make it easier to offer real-time insight into the local economy which could benefit the country as a whole as well.
It will also make it easier to expand the reach of the renminbi as intra-country transactions would be much easier to complete as well, and the currency would be easier to obtain than it is via current methods.
Other countries are also going to be interested in the results of China’s cryptocurrency project as it is said to integrate smoothly with the central banking system.
The new cryptocurrency is said to provide cryptocurrency wallets to the central banking branches which would make it easy for anyone to set up a digital account that uses the new cryptocurrency.
Also of interest is the fact that the cryptocurrency is said to not be based on the traditional blockchain architecture that powers virtually every cryptocurrency on the market today.
Rather, it makes use of a limited distributed ledger system as a means of getting around the potential for bottlenecks that are inherent in many blockchains.
Instead, it only accesses the digital ledger to occasionally update its records and determine who holds what and how long they have been holding it.