A Preview Of The Federal Reserve’s Coming Direct Money Transfers

Federal Reserve Governor Lael Brainard Says Fed Collaborating With MIT On “Hypothetical” Digital Currency.

Cross-posted from Zero Hedge

One week ago, we published a remarkable interview with two former Fed economists – Simon Potter and Julia Coronado – who have tremendous impact and influence on prevailing thinking at the Federal Reserve, and who hinted at the Fed’s last ditch reflationary strategy: wiring digital money into the bank accounts of Americans, bypassing the reserve system entirely, and sparking an inflationary conflagration. As we said last Monday, “the two propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments, which will be wired instantly to Americans.”

“One of the issues Congress had in passing the Cares Act is identifying who’s got mainly tip income, who doesn’t have sick days. If society wanted, you could use large datasets to direct fiscal transfers to those people.” – Bloomberg Interview with Coronado And Potter

And while this idea may have seemed absolutely ludicrous as recently as just one year ago, the fact that the just as ludicrous Helicopter Money is now de facto policy means that direct deposits of cash by the Fed into individual accounts is becoming increasingly probable, the only thing missing is the “digital currency” that would be used by the central bank.

Addressing this issue, on Thursday afternoon, Federal Reserve Governor Lael Brainard hinted once again at the coming monetary revolution when she said that the Fed is studying the opportunities and challenges presented by central bank digital currencies.

“To enhance the Federal Reserve’s understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multi-year effort to build and test a hypothetical digital currency oriented to central bank uses.”

The objectives of our research and experimentation across the Federal Reserve System are to assess the safety and efficiency of digital currency systems, to inform our understanding of private-sector arrangements, and to give us hands-on experience to understand the opportunities and limitations of possible technologies for digital forms of central bank money. These efforts are intended to ensure that we fully understand the potential as well as the associated risks and possible unintended consequences that new technologies present in the payments arena.

In prepared remarks of a speech titled simply enough “An Update on Digital Currencies” and prepared for delivery Thursday at a Fed technology event, Brainard said that “a significant policy process would be required to consider the issuance of a CBDC, along with extensive deliberations and engagement with other parts of the federal government and a broad set of other stakeholders.”

The punchline: “It is important to understand how the existing provisions of the Federal Reserve Act with regard to currency issuance apply to a CBDC and whether a CBDC would have legal tender status, depending on the design.The Federal Reserve has not made a decision whether to undertake such a significant policy process, as we are taking the time and effort to understand the significant implications of digital currencies and CBDCs around the globe.”

So what would prompt the Fed to undertake this significant policy process? Why another crisis, of course

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