Not so fast, bitcoiners.
Randal Quarles, the Federal Reserve official who oversees Wall Street, says central banks are a long way off from embracing cryptocurrencies as a means of paying for things. And with the price of bitcoin gyrating massively — it hit $11,000 this week before falling closer to $9,000 — he added that it could be dangerous for the financial system. That’s especially true as the digital-currency movement grows larger, Quarles said.
“Without the backing of a central bank asset and institutional support, it is not clear how a private digital currency at the center of a large-scale payment system would behave, or whether the payment system would be able to function, in times of stress,” Quarles, the Fed’s newly minted vice chairman for supervision, said in remarks prepared for a Thursday conference at the U.S. Treasury Department.
He also urged that other central banks take a cautious approach to cryptocurrencies.
“Digital currencies are a niche product that sometimes garners large headlines," he said. “But from the standpoint of analysis, the ‘currency’ or asset at the center of some of these systems is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all.”
So, Quarles — whom the Senate confirmed last month as the first-ever vice chair responsible for regulating banks — said the government should keep a close eye on digital currencies and slowly adopt any useful innovations as long as they can be rendered safe.
Quarles also laid out frequently cited risks about cryptocurrencies: They can be vulnerable to hackers, and to abuse by money launderers and terrorist groups. He added that a better use of governments’ time is making current payment systems faster and more convenient, particularly because existing networks are heavily regulated.
For what it’s worth, Quarles’ concerns about cryptocurrencies seem to go further than those recently stated by the man who’s expected to soon be his boss. At his Nov. 28 confirmation hearing to be Fed chairman, Jerome Powell sounded somewhat dismissive.
“They don’t really matter today,” Powell said. “They’re just not big enough.”