Federal Reserve Bank Makes Case That Cryptocurrencies Are Equal to Cash

Despite calls for regulatory reform and vigilance from critics and alarmists, digital currency has found a defender in the Federal Reserve Bank of St. Louis.

In a blog post, the Federal Reserve of St. Louis compares cryptocurrencies to fiat currencies — in effect, the same as cold hard cash.

Two of the bank’s economists, Aleksander Berentsen and Fabian Schär, offer three arguments to bolster the case that crypto equals cash.

In short, they contend, cryptocurrencies and cash both have no intrinsic value, are in limited supply, and require no intermediary or middle man to finalize transactions.

Just like cryptocurrencies, the economists argue that, “[s]tate monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either.”

In fact, they say, U.S. cash is just a blend of 75% cotton and 25% linen.

Fiat currencies only have a transactional value bestowed by a government, central bank or financial regulatory authority.

All fiat currencies, too, have a limited supply dictated by financial market conditions and whether central banks decide to mint more money.

Finally, unlike with credit card payments, no middle man or intermediary is required for cash or cryptocurrency transaction completion.

While the Federal Reserve of St. Louis’ stance on cryptocurrencies is newsworthy, it remains to be seen what effect it will have on the legislative fortunes related to cryptocurrency use.

The bank’s embrace of cryptocurrencies is far from the stance of most financial authorities.

Rather, many are wary of cryptocurrencies’ potential to destabilized global financial infrastructures long built to accommodate fiat.

Intrinsic value

Bitcoin and other cryptocurrencies are not minted, controlled nor regulated by any financial or governmental authority. Instead, they are wholly created anonymously on computers via blockchain mining.

What’s more, cryptocurrencies are not backed by gold or any other analogous commodity. Basically, cryptocurrencies feature no inherent intrinsic value as a form of currency.

That makes them a kind of cash.

The trust that people have in governments, central banks and financial regulatory bodies is what intrinsically gives fiat currencies its value.

According to the Federal Reserve of St. Louis then, cryptocurrencies are just the evolved, digital version of fiat currencies we have long trusted and used.

Will that work in practice? We’ll find out.

Small-cap winners galore

The big stock market winners share one common attribute: Near the beginning of the ascent of their shares, the companies offer revolutionary products or services, are market leaders in their respective industries, or both. Some big stock market winners that possessed the attributes outlined above are Netflix (NFLX), which we recommended to investors in October 2002; Intuitive Surgical (ISRG), which we bought and recommended in July 2004; Baidu.com (BIDU), which we bought and recommended in August 2006; and MercadoLibre (MELI), which we recommended to investors in October 2010. Get up-to-date small-cap stock picks from David Frazier, editor of Small-Cap Profit Confidential.
Click here

Smarter cryptocurrency investments

The stock market crash of 2008 was the catalyst for his journey into alternatives. And interestingly, it was the impetus behind the creation of Bitcoin and the blockchain technology behind it. Keene Little wasn’t ready to risk his money yet but he was very curious, so he began charting Bitcoin’s technical patterns. What finally convinced him to dip a toe into digital currencies was seeing that they followed familiar price patterns that could be analyzed and successfully acted on. Now he shares those insights with subscribers to the Crypto Wealth Protocol.
Learn more

Leave a Reply