Feds, Jerome Powell, says public should understand the risks behind Bitcoin
Bitcoin has soared nearly ten-fold in value compared with a year ago, hovering around $57,000 on Monday. That is up from $5,830 in March 2020. It is often seen as a hedge against inflation, and inflation fears have risen as the Fed has kept its short-term benchmark interest rate pegged near zero for the past year. The Fed is also injecting $120 billion into the banking system each month by purchasing Treasurys and mortgage-backed securities.
While Bitcoin is rarely used in transactions, that could change. Electric car maker Tesla said last month that it was buying $1.5 billion of Bitcoin and would soon accept Bitcoin payment for its cars.
Federal Reserve Chair Jerome Powell said Monday that the U.S. public needs to understand the risks behind Bitcoin and other cryptocurrencies, even as the central bank itself is studying the potential costs and benefits of a digital dollar.
Powell said the Fed prefers to call crypto coins “crypto-assets" because their volatility undermines their ability to store value, a currency's basic function.
Powell also said the Fed is researching the potential for a central bank digital currency, though he added that the Fed is not yet near a decision about implementing one.
“We’re not in a mode of trying to decide at this point," he said. “We are experimenting with the technology."
But Powell added that given the dollar's critical role as the world's leading reserve currency, the Fed has “an obligation to be on the cutting edge" of understanding the costs and benefits of a central bank digital currency, or CBDC.
The Fed chair also expressed some concerns about so-called “stable coins,” which are digital currencies pegged to the value of government-backed currencies such as the dollar or euro. Facebook’sLibra, which it now calls Diem, is an example of a stable coin.
The potentially fast and wide adoption of a global stablecoin, potentially a global currency governed only by the incentives of a private company, is something that will deserve and will receive the highest level of regulatory expectations,” Powell said. “Private stable coins are not going to be an appropriate substitute for a sound monetary system based in central bank money.”
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