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- Cryptocurrencies like bitcoin are too volatile to replace the dollar, Fed Chairman Jerome Powell said on Monday.
- Bitcoin’s price has skyrocketed as companies like Tesla and Square invest in the token.
- The Fed is still exploring use cases for a central bank-issued digital currency, Powell said.
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Federal Reserve Chairman Jerome Powell said on Monday that while the central bank is still exploring the potential for a central bank digital currency, cryptocurrencies like bitcoin cannot serve as an effective substitute for the U.S. dollar.
Bitcoin enjoyed new fame last year, as the adoption of cryptocurrencies by large companies has caused prices to skyrocket. Companies like Tesla, MicroStrategy and Square have invested in the token. Meanwhile, participants in the financial sector are beginning to use cryptocurrencies as an alternative asset.
Positive developments helped bitcoin reach $ 61,742 earlier this month as more investors sought to profit from the token’s growing popularity.
Powell has his doubts about cryptocurrencies and their alleged use cases. Tokens may be a substitute for gold, but their violent price swings make them unsuitable for replacing the dollar, the head of the central bank said during a conference call sponsored by the Bank for International Settlements.
“Crypto assets are highly volatile – see bitcoin – and therefore are not really useful as a store of value,” said Powell, according to MarketWatch. “They are not supported by anything. They are yet another resource for speculation.”
Bitcoin fell slightly during the day following Powell’s comments. The cryptocurrency was traded just over $ 57,000 as of 2:30 pm ET, an increase of approximately 98% in the year.
While cryptocurrencies are unlikely to win the Fed’s favor, the central bank considered the possibility of creating its own digital currency. The Fed partnered with MIT researchers in August to build and test a central bank’s digital currency. Officials sought to gain a better understanding of digital currencies and their potential implementation through testing, said Fed Governor Lael Brainard at the time. Still, the token included in the study was merely “hypothetical”, she added.
Powell reiterated that, although the bank is still studying the potential for a digital dollar, a serious assessment is needed before such a currency is implemented.
“To move forward with this, we would need the support of Congress, the government, broad elements of the public, and we have not yet begun work on this public engagement,” said the Fed chairman. “As the world’s leading reserve currency, we do not need rush this project. [need] to be the first on the market. “
Somewhere between the central bank’s digital currency and cryptocurrencies there are stable currencies. These tokens counteract the volatility observed with cryptocurrencies by linking their value to more stable assets, such as currencies issued by the government.
Stable currencies are “an improvement” over cryptocurrencies and “may have a role to play” in digitizing the dollar, but they are unlikely to form the basis for a global payment system, Powell said. Any candidate for a global currency controlled by a private company deserves “the highest level of regulatory expectations,” he added.