James Bullard, who is at the helm of the St. Louis Federal Reserve Bank, is concerned that cryptocurrencies are complicating the markets.
As an official of the centralized government the cryptocurrency market is designed to avoid, Bullard may have stood out at Consensus 2018, which is a blockchain technology summit hosted by CoinDesk. But that didn’t stop him from sharing his concerns, chief among which is multiple digital currencies trading separately and having a major impact on the exchange rate, which he told CNBC is a “big deal.”
The rise of cryptocurrencies, Bullard pointed out, is harkening back to the 1830s when money was privately created. Digital currencies have brought back “non-uniform” currencies in the United States, which could be problematic, he suggested. Non-uniform currencies don’t have a good track record, and when they’ve emerged historically they’ve never lasted long.
Considering that there are some 1,8000 digital currencies trading in the cryptocurrency market, and new ones coming on the scene every day, consumers may decide to shun this model amid the inconsistent rates at which they trade. So far, of course, this hasn’t happened.
“Cryptocurrencies may unwittingly be pushing in the wrong direction in trying to solve an important social problem, which is how best to facilitate market-based exchange,” according to Bullard at the conference.
The fallout? “The cryptocurrency wave may be driving the US uniform currency system toward something more like the international non-uniform currency system,” Bullard said.
He pointed to cryptocurrency pairs trading, saying that similar to say the JPY/USD, “you don’t know how they’re going to trade against each other.”
And while the economy is full of “currency competition” unfolding at the moment, Bullard’s betting on the dollar because “it’s backed by the largest economy and a relatively stable policy in terms of low inflation and that’s going to be tough to beat. But a lot of people here want to beat it,” Bullard told CNBC.
Meanwhile, Bullard doesn’t view bitcoin or any altcoins as a threat to the USD, at least not yet. The Bank of England’s Mark Carney doesn’t believe that cryptocurrencies pose a systemic risk to the global economy. The Fed’s Bullard pointed to the lower trading volume in cryptos vs. the broader financial markets as the reason why he’s not more worried about them.
Bullard wasn’t entirely dismissive of digital currencies, saying they fuel cross-border transactions that wouldn’t otherwise be possible, slashing costs in the process. This is a positive contribution.
Meanwhile, policymakers want to remain engaged in the market, even if there’s no Fed Coin on the horizon.
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