- Jerome Powell, US Federal Reserve Chairman, is worried about the growing repercussions of cryptocurrencies could have on the US citizens
- Bank of International Settlement hosted the virtual summit where Powell was addressing the people and alike
Federal Reserve Chairman Jerome Powell while addressing the media had requested the U.S. citizens to not fully depend on bitcoin or any other form of cryptocurrencies. People should need to understand the risks involved in dealing with cryptocurrencies. Nevertheless, the Central Bank too is studying the potential benefits and costs of a digital dollar.
Powell further explained that cryptocurrencies are referred to as crypto assets as they are volatile and their volatility undermines their ability to store value, which is a basic function of a currency.
Bank of International Settlement hosted the virtual summit where Powell was addressing the people and alike. Expressing his views on the cryptocurrencies he further added that bitcoin is a highly volatile currency, therefore it is not useful as a store of value. They are more like an asset. Hence, they are not used as a means of payment. It acts like a substitute for Gold rather than for the dollar.
The prices of Bitcoin have been increasing from time to time and have reached tenfold in value if compared from last year. The price of the bitcoin was recorded at $57,000 in the Monday trading session. It is up from $5,830 in March 2020. It is often compared as a hedge against inflation and inflation fears have increased as the Fed has kept a short term benchmark interest rate pegged near zero from the past year. The Fed has been putting $120billion into the banking system every month by buying Treasuries and mortgage backed securities.
The transactions in bitcoin are not much appreciable. But last month when Tesla announced that the company was buying $1.5billion of bitcoin and will soon accept bitcoin payment for its cars.
Besides cryptocurrencies, the Central Bank is also looking for a potential Central Bank digital currency. But the decision of rolling out such currency has not been finalized. The Central Bank is still experiencing technology. But given the chance, Powell said that Central Bank digital currency will have its own benefits and leverage. This is because the dollar’s critical role is like a world’s leading reserve currency. It gives the Fed the chance to be on the cutting edge.
Unlike Fed there are many other central banks which are exploring to launch their own digital currency. China is among the first to launch their own virtual currency, which is a matter of concern for many as they fear that China is ahead of the U.S. in Thai front.
On the virtual currency, Powell informed that the Fed is doing its internal research through the in-house technology lab and also tying knots with MIT through the Federal Reserve Bank of Boston. With technology comes the benefits and risks too. The benefits include a more efficient and inclusive payment system. The risks of cyber attacks, money laundering, and terrorists financing are also a part of the learning. The other risk involved is that the digital currency could be held by individuals electronically and could therefore bypass banks.
Powell further said that Congress should pass a legislation, allowing a CBDC before the Fed could create one. Stablecoins are another concern for the Fed Chairman. They are like digital currencies that are pegged to the value of government backed currencies like Dollar or Euro. Facebook’s Libra, which is also known as Diem, is an example of stablecoins.
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