Bitcoin Is A ‘Speculative Asset,’ Not Useful As A SoV; A Substitute for Gold Not The Dollar: Fed Chair
As for stablecoins, Jerome Powell said they get their credibility only from sovereign currencies they are backed with. Fed is also experimenting with CBDC, which he said won't disrupt the private sector.
Bitcoin lacks the key elements needed to be a useful currency; as such, it is more of a substitute for gold than the dollar, said Federal Reserve Chairman Jerome Powell.
“It is a speculative asset that is essentially a substitute for gold rather than for the dollar,” said Powell during the Bank of International Settlements Innovation Summit virtual event, titled “How Can Central Banks Innovate in the Digital Age?” Monday.
According to Powel, Bitcoin is highly volatile and more of an asset for speculation, “so they’re also not particularly in use as a means of payment.”
“Crypto assets are highly volatile — see Bitcoin — and therefore not really useful as a store of value. They’re not backed by anything. They’re more of an asset for speculation.”
It’s all about Sovereign Currencies
Powell appeared with Agustín Carstens, the BIS's general manager, and Jens Weidmann, leader of the Deutsche Bundesbank and member of the European Central Bank’s Governing Council.
Commenting on fiat-backed stablecoins, Carstens said they have “inherent destabilizing risks” and don’t make a lot of sense because they derive their value from other volatile assets.
Meanwhile, Powell said backed by sovereign currencies of leading countries is certainly an improvement over being backed by crypto assets; nonetheless, their credibility only comes from those sovereign currencies.
Digital Dollar needs Congress Support
Talking about the central bank digital currency (CBDC), Powell said because the US dollar is the world’s reserve currency, the Fed should be on the cutting edge of developing a digital dollar, but added there is no need to rush the process.
The Fed is actually investigating and experimenting with the idea of a CBDC but said it is not known if there is enough public or government support for it. To adopt a fully digital dollar, he said,
“We would need buy-in from Congress, from the Administration, from broad elements of the public,” he said. Most importantly, “we would not proceed with this without support from Congress, and I think that would ideally come in the form of an authorizing law, rather than us trying to interpret our law to enable this.”
No Disruption to Private Sector
Wall Street, however, is not thrilled with Fed’s work on a new digital currency as Michael Del Grosso, an analyst for Compass Point Research & Trading LLC, said, “Everyone is afraid that you could disrupt all the incumbent players with a whole new form of payment.”
Powell assured that the efforts for a digital dollar are not intended to disrupt the private sector and also that it isn't’ driven by the rise of crypto assets like Bitcoin either.
The Fed would also need to address the risks, including cybersecurity and financial stability, he said.
“We don't want to destabilize the two-tiered system between the central bank and private banks and private banks and the public.”
Last week, in video remarks to a payments conference in Basel, Switzerland, Powell also said that “digital currencies would need to be integrated into existing payment systems alongside cash and other forms of money.”