May 15, 2018 / 11:12 PM / 5 days ago

Fed's Brainard sees no compelling case for Fed digital currency

SAN FRANCISCO (Reuters) - Delivering what may be one of the U.S. central bank’s most detailed critiques of cryptocurrencies to date, Federal Reserve Governor Lael Brainard on Tuesday said digital coins pose “serious” challenges, and she all but dismissed the possibility that the Fed could enter the market.

Federal Reserve Board Governor Lael Brainard speaks at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts, U.S., March 1, 2017. REUTERS/Brian Snyder

“There is no compelling demonstrated need for a Fed-issued digital currency,” Brainard said in remarks prepared for delivery to a Fed conference in San Francisco that had not previously been publicized. “Although central bank digital currencies may be able to overcome some of the particular vulnerabilities that cryptocurrencies face, they too have significant challenges related to cybersecurity, money laundering, and the retail financial system.”

Entrepreneurs have created hundreds of new digital options beyond bitcoin that have so far largely escaped any concerted crackdown by regulators. Interest in the tokens is so widespread that San Francisco Fed President John Williams at a public appearance last month expressed surprise at not being asked about it, although eventually he was.

St. Louis Fed President James Bullard on Monday even made an appearance at a conference on digital currencies, where he gave his own critique.

Brainard’s objections to currencies like bitcoin ran along lines that by now have become familiar but are noteworthy for their length and detail, and because they reveal the extent to which Fed officials are monitoring and doing research in the field.

Bitcoin, Brainard said on Tuesday, is so volatile that its use as money is limited; the anonymity that is part of the design of digital currencies mean they can be easily used in money laundering; and the technology that governs them is not overseen by any higher authority, opening consumers to theft and mistakes that they can do little about.

“Cryptocurrencies are strikingly innovative but also pose challenges associated with speculative dynamics, investor and consumer protections, and money-laundering risks,” she said.

Brainard tempered her criticism with a few remarks about the potential of the underlying technology to smooth payments and the possibility that digital coins could have limited application for bank-to-bank transactions, and some payments in financial markets.

But while digital currencies are problematic, she said, they are currently so small a part of the overall financial system that they pose little stability risk.

Overall, her remarks did not suggest the Fed believes digital currencies are ripe for consumer adoption.

“In addition to losses, individual investors should be careful to understand the potential for other risks,” Brainard said.

Reporting by Ann Saphir; Editing by Leslie Adler

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below