President Joe Biden signed an executive order on Wednesday directing the Federal Reserve to explore the option of creating its own digital currency.
“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk,” the White House fact sheet on the order said.
“The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate.”
“My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States [central bank digital currency],” the executive order reads.
Treasury Secretary Janet Yellen said in a statement that the effort would “support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses. It will also address risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy.”
The Biden administration is hopping on the cryptocurrency train after the apparent rise in its importance. The crypto market surged past $3 trillion at the end of 2021, Fortune reported.
But it’s not just that cryptocurrency is a growing market. It is a threat to the very existence of central banking, as Investopedia outlined in November.
That is why the Biden administration now wants the Fed to stick its nose into crypto.
Bitcoin emerged in response to the 2008 financial crash, which was largely due to the central bank’s policies. Taking the opposite approach to finances, Bitcoin is based on peer-to-peer transactions, which makes the bank irrelevant.
Should the Federal Reserve create a digital currency?
“With its decentralized system and peer-to-peer technology, Bitcoin has the potential to dismantle a banking system in which a central authority is responsible for decisions that affect the economic fortunes of entire countries,” Investopedia reported.
The Biden administration is clearly afraid of the increasing prominence and possible dominance of crypto, so it is looking to involve itself in the crypto world. That way the government can have more control over an essentially free market.
But in trying to influence the crypto market, the government may run into the golden goose problem.
In the old golden goose fable, a man has a goose and is preparing to make her a meal. Just before he kills her, the goose begins laying golden eggs. So the man keeps her alive for the sake of the eggs. But then he grows greedy. He kills the goose and opens her up, hoping to find a trove of golden eggs. But there is nothing. Now he has a dead goose and is back to where he started.
The very thing that makes crypto lay golden eggs is the fact that it is decentralized. Now the Biden administration is trying to centralize a system built on the principle of peer-to-peer transaction.
That is like killing the goose and expecting her to lay golden eggs.
The administration may argue that it simply wants to digitize the dollar, but this looks more like a misguided grab for control of the cryptocurrency market.