The US Federal Reserve has issued a bitcoin warning, citing “financial stability risks” and urging central banks to take a cautious approach to cryptocurrencies.
While bitcoin and other cryptocurrencies may not pose major concerns at their current levels of use, “more serious financial stability issues may result if they achieve wide-scale usage,” Federal Reserve vice-chairman of supervision Randy Quarles believes. Quarles was confirmed last month as the first-ever Fed vice chair responsible for regulating banks.
“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,” Randal Quarles said in remarks prepared for a conference at the U.S. Treasury Department, according to Bloomberg.
The fed official has also cautioned central banks against backing bitcoin and other cryptocurrencies, stating that the focus should be boosting current payment systems instead.
“Digital currencies are a niche product that sometimes garners large headlines,” Quarles 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.”
Jerome Powell, the nominee to replace Janet Yellen as Federal Reserve chair, has taken a more disparaging approach regarding cryptocurrencies.
“They don’t really matter today,” Powell said during his November 28 confirmation hearing to be Fed chairman. “They’re just not big enough.”
The US Senate Judiciary Committee is currently tackling bill S.1241, aimed at “Modernizing AML Laws to Combat Money Laundering and Terrorist Financing”. If passed, the proposed legislation would criminalize concealed bitcoin ownership and affect cryptocurrency holders both in the US and abroad.
Moreover, the White House is reportedly monitoring bitcoin and other cryptocurrencies.
Federal Reserve issues bitcoin warning – Image source: Andrew Harrer/ Bloomberg