Conspiracy Theories, Cryptocurrency and the Fed

The internet is place of light, hope and community where people can engage with the rest of the world. It is also a dark pool of misinformation, lies and conspiracy theories where trolls and fraudsters spin their webs.

Let’s take a (mercifully) shallow dive and see what’s bubbling to the surface.

It doesn’t take long to find a lot of froth about the Federal Reserve Board. This time, however, it’s not the usual global banking conspiracy of plutocrats and elites pulling the levers of international finance to suit their needs. This one is more 21st century than that.

In July, the Fed will officially launch FedNow, a new service from the Central Bank that will enable individuals and businesses to send and receive instant payments. In a media release announcing the July launch, Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive, explained the scope of the service.

“We couldn’t be more excited about the forthcoming FedNow launch, which will enable every participating financial institution, the smallest to the largest and from all corners of the country, to offer a modern instant payment solution,” he said, in the release. “With the launch drawing near, we urge financial institutions and their industry partners to move full steam ahead with preparations to join the FedNow Service.”

Pretty mundane stuff. It doesn’t even seem to be a big enough deal to generate a viral post, let alone spawn a conspiracy theory. But it doesn’t take much.

Consider how much the Fed is in the news these days with interest rate hikes, recession fears and inflation all the (en)rage. Also consider how little most people really know about the Fed and what it does. Chances are when asked to explain the central bank’s “dual mandate” a lot of Americans would likely shrug their shoulders and shake their heads. But they are unlikely to disagree with the goals of that mandate – maximum employment and stable prices – if asked.

Still, because the conduct of monetary policy is our modern-day alchemy the Fed is a prime target for wild speculation with just a dash of fabrication. And the FedNow program is as good a target as any.

There are at least two main theories circulating in the dark waters of the web about FedNow.

One holds that it is really the creation of government-controlled digital money – formally known as a central bank digital currency – that will do something bad at some time to some people. The details are a bit fuzzy but that doesn’t diminish the conviction with which the idea is promoted.

The other is a little more serious – and a lot more far-fetched.

This theory states FedNow was developed to give the government the power to monitor, freeze and even seize private bank accounts based on a person’s behavior or political beliefs. Precisely how that would work is not clear.

While fantastical, the narrative of Fed officials, cloistered in their fiscal ivory tower in the Marriner S. Eccles building on Constitution Avenue in Washington, D.C., pulling the levers of international finance in smoke-filled back rooms with a wink and handshake, plays on popular misconceptions about monetary policy and lends itself to the creation of conspiracy theories.

The problem with conspiracy theories is they get in the way of clear information and informed discussion. It’s hard to have an honest debate about the future path of monetary policy if one side believes the Fed is working at the behest of a power elite and the other side does not. And that’s not good for the economy.