The chairman of the US Federal Reserve warned that Bitcoin and other cryptocurrencies were “ not really useful as a store of value, ” but added that the central bank itself was studying the costs and costs. possible benefits of a digital dollar.
Federal Reserve Chairman Jerome Powell said on Monday that the American public needs to understand the risks behind Bitcoin and other cryptocurrencies, even as the central bank itself studies the potential costs and benefits of a dollar. digital.
Powell said the Fed prefers to call cryptocoins “crypto assets” because their volatility compromises their ability to store value, a basic function of a currency.
“They are very volatile, see Bitcoin, and therefore not really useful as a store of value,” Powell said in a speech at a virtual summit hosted by the Bank for International Settlements. “They are more of an asset for speculation. They are therefore not particularly used as a means of payment. … It is essentially a substitute for gold rather than the dollar.
The value of Bitcoin has almost increased tenfold from a year ago, hovering around $ 57,000 on Monday. That’s a hike of $ 5,830 in March 2020. It’s often seen as a hedge against inflation, and inflation fears have grown as the Fed maintained its benchmark short-term interest rate. near zero last year. The Fed also injects $ 120 billion into the banking system each month by purchasing treasury bills and mortgage-backed securities.
Although Bitcoin is rarely used in transactions, that could change. Electric car maker Tesla said last month it was buying $ 1.5 billion worth of Bitcoin and would soon accept Bitcoin payment for its cars.
Powell also said the Fed was studying the potential of a central bank digital currency, although he added that the Fed was not yet close to a decision on its implementation.
“We are not trying to make a decision at this point,” he said. “We are experimenting with technology.”
But Powell added that given the dollar’s critical role as the world’s leading reserve currency, the Fed has “an obligation to be on the cutting edge” in understanding the costs and benefits of a digital bank currency. central, or CBDC.
At the same time, Powell said there was no need for the Fed to rush or “be the first to market.” Many other central banks are exploring CBDCs, including China, and some observers fear that China is ahead of the United States on this front.
Powell said the Fed conducts research through an in-house tech lab and also works with MIT through the Federal Reserve Bank of Boston, one of its 12 regional federal banks.
“The real threshold question for us is, ‘Does the public want or need a new digital form of central bank money to complement what is already a highly efficient, reliable and innovative payments-oriented system? ? ‘”Said Powell.
There are risks and rewards for digital currencies, the Fed chairman said. The benefits include a “more efficient and inclusive payment system”, while the risks involve cyber attacks, money laundering and the financing of “terrorism”.
There is also the risk that a digital currency could be held by individuals electronically and therefore could bypass banks.
“We don’t want to compete with the banks for funding,” said Powell.
Ultimately, Powell said Congress would likely have to pass legislation authorizing a CBDC before the Fed creates one.
“We wouldn’t do it without the support of Congress, and I think it would ideally take the form of a licensing act,” said Powell.
The Fed chairman also expressed some concerns about so-called “stablecoins,” which are digital currencies pegged to the value of government-backed currencies such as the dollar or the euro. Facebook’s Libra, which he now calls Diem, is an example of a stablecoin.
“The potentially rapid and broad adoption of a global stable currency, potentially a global currency governed solely by the incentives of a private company, is something that will deserve and receive the highest level of regulatory expectations,” said Powell. . “Private stablecoins will not be a suitable substitute for a strong monetary system based on central bank money.”