Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, Entry #1. List and general description of entries to date.

Note: most entries are formatted as conversations. Characters appear in a number of entries, with many entries building on previous conversations. Profile of characters (see link at top of page). You’ll catch on quickly. Thanks for your time and interest…and comments.

Scene: Jordan’s office, Washington, DC

Gelly: “Jordan, you have a call from a guy named Willie. Want to take it or should I…”

Jordan: “…I’ll take the call. You’ve never met Willie? That’s his nickname. He’s the banker and neighbor in Charlotte.”

Gelly: “Now I know who you mean. Didn’t realize his nickname was Willie.”

Jordan (picking up phone): “Willie, thanks for calling back.”

Willie: “Your voice mail said you wanted to talk about crypto-currency.”

Jordan: “Yes. Need some guidance.”

Willie: “I can help with macro issues but I’m not a technical expert.”

Jordan: “Right now not concerned with the tech side…maybe later. Really want to understand how the Federal government views…or viewed…crypto-currency. What were the perceived implications on policy decisions of crypto-currency?”

Willie: “Where do you want to start?”

Jordan: “First, is crypto-currency considered a real currency or not? From what I gather, crypto-currency is a currency, but not a currency sponsored by a government. You know, it functions like the US dollar or Euro but there’s no government behind it, right?”

Willie: “You got it right. Crypto-currency is a de facto currency created by a non-government entity.”

Jordan: “In a way, the crypto-currencies remind me of the US prior to the creation of the Federal Reserve. Lots of variation in value and no one quite sure who’s in charge?”

Willie: “Wondering who’s on first is not a bad way to look at it. Crypto-currencies are like a bunch of banks issuing their own currency…except rather than issuing paper notes its digital currency. And rather than backed by gold or silver, it’s backed by what one might term vaporware.”

Jordan: “So, if a bunch of groups issue their own currency, how do you use it? What merchant is going to accept your crypto-currency? The merchant has to get someone else to accept it, otherwise he’s screwed.”

Willie: “Another good question. A lot of the so-called crypto-currencies vanished early on. Some never got any momentum and some were never issued even after investor funds were taken.”

Jordan: “But a couple of the crypto-currencies made it big time. What I still don’t understand is where the value came from? You did say it was like vaporware.”

Willie: “Just thinking about it is somewhat baffling. The most popular crypto-currencies were created out of thin air. OK, the currencies were created using a complex computer algorithm…but essentially out of thin air.”

Jordan: “You mean there was no real value? Zippo…nada…nothing?”

Willie: “A couple of crypto-currencies were backed by some assets. One was even backed by gold, but most were backed by nothing.”

Jordan: “Who would fall for a scheme like that? Reminds me of the tulip craze in the 17th century. At least for that craze, people bought some asset, albeit a tulip.”

Willie: “Supporters of crypto-currency claimed it was no different from currency issued by governments, so-called FIAT currencies. The FIAT currencies – US dollar, for example – no longer have precious-metal backing. According to these supporters, governments just print money with no underlying value.”

Jordan: “While true that governments might have gone off the gold standard, governments do have assets…and a way to generate revenue. Governments can collect taxes. Save one or two, crypto-currencies had no assets and none had authority to collect taxes.”

Willie: “Creators of crypto-currencies claimed value was created because only so many would ever be ‘coined.’ Since the supply of coins was finite, value was created and justified.”

Jordan: “Aside from the illogic that a finite supply of something automatically creates value, what was their view of the real purpose of crypto-currency?”

Willie: “Some will claim my opinion’s biased because I’m in the banking industry. My view crypto-currency was attractive to certain groups for two basic reason: (i) help facilitate illicit transactions, especially drugs; (ii) help avoid taxes.”

Jordan: “Over the years you’ve dealt with the Federal Reserve. How did they view crypto-currency?”

Willie: “At first, crypto-currencies were viewed by the Fed as an annoyance, but not a major issue. Think of a crypto-currency as a mosquito or a gnat.”

Jordan: “Then the mosquito started to grow…like a mosquito on steroids.”

Willie: “You’re right. Once on steroids, the Fed began to look at crypto-currencies as a threat to its control.”

Jordan: “How so?”

Willie: “Two primary roles of the Federal Reserve are managing monetary policy and controlling the banking system. The already difficult job of managing monetary policy became much more difficult with the alternative-currency universe.”

Jordan: “So the more crypto-currencies were used instead of dollars…the more crypto-currencies became a larger percentage of the money supply…the more exaggerated the Fed’s actions needed to be to achieve the same desired policy effect. The Fed was dealing with a smaller pie, as it were.”

Willie: “Most people did not fully appreciate how crypto-currencies forced the Fed’s hand. Crypto-currencies took a bigger and bigger slide out of the Fed’s monetary pie. In order to achieve the same result as before crypto-currencies, the Fed was forced to exaggerate changes in interest rates, both up and down. The exaggeration also affected Wall Street. As a result, the Fed was unhappy, Wall Street was unhappy, many investors were unhappy and the general public was unhappy.”

Jordan: “Anything else?”

Willie: “Two other critical issues. A key reason the Fed was created was to help facilitate trade. Many of the crypto-currencies fluctuated wildly in value, which created uncertainty and slowed trade.”

Jordan: “What’s the second issue?”

Willie: “Federal revenue. While the Fed is not responsible for collecting taxes, in order to manage monetary policy, the Fed needs to have a good idea of sources and uses of Federal funds.”

Jordan: “Because the flow of crypto-currencies was hard to track and therefore hard to collect taxes on that flow, forecasting Federal revenue became even more uncertain. Right?”

Willie: “You got it. From the Fed’s perspective, and a lot of other people agreed, crypto-currencies were a cancer that was restricting trade, making monetary policy more difficult to manage and reducing potential government revenue. The solution? Ban crypto-currencies. Send crypto-currencies to the crypt. Does that help explain crypto-currencies?”

Jordan: “Yes, very much so. Thanks. Willie, as always, nice to chat. Let’s get together soon.”