US Federal Reserve head Jerome Powell thinks that Bitcoin, due to its inherent high volatility, will not take the place of the dollar, but could potentially become a replacement for gold.
Jerome Powell noted this in an address to a conference arranged by the Bank for International Settlements. He stated that Bitcoin still lacks many key components that would make it a worthwhile currency. Firstly, Bitcoin and crypto assets in general are highly unpredictable and volatile, and that is why they are unsafe to be treated as a storage of value. Furthermore, trades with crypto assets are reminiscent of speculation, since “crypto-assets are not supported by anything.”
The Stablecoin Testament
Meanwhile, Powell dubbed stablecoins “an enhanced form of cryptocurrencies”, because stable tokens are, as a rule, pegged to fiat currencies, which guarantees their comparative steadfastness. The Fed chairman agreed that stablecoins could play an essential role in the creation of applicable regulation. At the same time, they lack the capacity to set a solid foundation for the formation of a modern international monetary system.
Powell held more uncompromising views about stablecoins a few years back. He thought that with various payment alternatives available, users won’t be drawn into using stablecoins or government digital currencies for that matter. Now Powell is starting to change his opinion slowly but surely.
Powell recently stated that it is a leading priority to develop regulation for stablecoins, that should be controlled within the same framework as already established payment systems.
Digital Dollar Vs. Digital Gold
Speaking about the prospect of introducing a digital dollar, Powell restated that the Fed can only fulfill this initiative after performing detailed research. The US government must analyse the potential risks associated with the state digital currency, contemplate the options for its use, and evaluate its potential. Also, consider what benefits such a digital asset can bring about to the American society.
The Fed chairman encouraged Congress to consider laws regulating the application of the digital dollar. Many economists suppose that the release of the digital dollar could have a constructive impact on the country’s economy in times of crisis and pandemic. Theoretically, Americans could receive social benefits in digital dollars in an instant. However, Powell noted that the definitive decision on the introduction of the state stablecoin has not been produced yet.
“We do not need to be the first to release the digital currency of the Central Bank. The US dollar is already positioned as the main reserve currency in the world, so we have no reason to rush,” Powell noted.
He further stated that in such unpredictable times, Americans may want to use digital dollars all the time. In the longer term, this may result in an outflow of regular money from commercial banks. And this represents a dangerous prospect for the Fed.
