America, use Bitcoin instead of old-school money? Not likely, says Fed
It's all about the Benjamins, says Michael Barr
Federal Reserve Vice Chair for Supervision Michael Barr says crypto-assets are "unlikely to grow into money substitutes" because they have proven to be so volatile and posed "novel" risks.
Barr was speaking at the annual fintech ecosystem talk shop in Washington, DC Fintech Week, where he said the idea you could use them to pay for transactions was improbable. However, he had some faint praise for stablecoins, saying they have a "greater capacity to function as privately issued money."
Stablecoins can be pegged to a currency or a commodity, like gold, although most currency linked ones are tied to the dollar, such as Tether, the world's largest stablecoin, with a market capitalization of more than $68 billion at the time of writing.
Barr added that he believed stablecoins "pose specific, and well-understood risks, similar to other types of money-like assets," although he cautioned: "History has shown that money-like assets are subject to runs that can threaten financial stability."
The Fed is especially interested in stablecoins that are linked to the US currency, said Barr, although he didn't name any specifically.
The news comes a day after cryptocurrency exchange Bittrex paid a whopping $53 million to settle claims by the US Treasury's Office of Foreign Assets Control and its Financial Crimes Enforcement Network that the platform broke US sanctions, federal money laundering laws, and other banking rules.
The exchange was alleged to have done business with netizens in Cuba, Sudan, Syria, Iran and Crimea, which would have been in violation of US sanctions.
Trust in the central banks
Barr was echoing comments by Reserve chair Jerome Powell earlier this month, who said a central bank will always be the main source of trust behind money – although we note that Powell at the time was speaking to a roundtable of other central banking leaders who are concerned about decentralized finance in a conference organized by France's central bank, Banque de France.
Barr noted that stablecoins borrow the trust given to central banks, so regulators were especially keen to get a strong federal framework in place for their use.
The Board is working with our colleagues at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to ensure that crypto-asset-related activities banks may become involved in are well regulated and supervised, to protect both customers and the financial system.
Google Cloud this week joined the leagues of those who accept cryptocoin, although the payment method will only be available to a select few initially.
Barr, whose job is to oversee the way the Fed supervises and regulates banks and other finance and fintech types, did not mention the ecological demands of all crypto assets – whether stablecoin or more volatile cryptocurrency like Bitcoin – that use the energy-intensive blockchain as a consensus mechanism.
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Netscape developer Jamie Zawinski told The Register in January that there was "literally nothing in the modern tech ecosystem more short-sighted," branding crypto an "ecological disaster" whose main effect was the incineration of the planet.
But only a month after one central bank had to work to protect a country from actual market collapse after the UK launched a mini-budget that sent its government debt into free fall, we think it's fair to say that crypto fans and fintechers alike should sit up and pay a little attention. ®