The digital frenzy, including calls for the creation of official cryptocurrencies, could seem like an unfortunate fad, Fed Vice President Randal Quarles said on Monday.
“The centuries-old enthusiasm of the United States for new things” was, for the most part, beneficial, the executive pointed out, warning that when this enthusiasm “is associated with an equally American susceptibility to enthusiastic promotion and the fear of being left out, it also sometimes leads to a mass suspension of our critical thinking and to occasionally impetuous and delusional fads or fads”.
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Central bank digital currencies (CBDCs) could pose serious risks and would not solve any of the financial system’s problems, Quarles warned in a speech to the Utah Bankers Association. He reiterated his skepticism about the United States having a CBDC, and sought to placate what he considers over-enthusiasm: “Before we get swept away by the novelty, I think we need to subject the promises of a CBDC to careful critical scrutiny.”
While there is a very high barrier to overcome, given the potential costs and risks surrounding security, Quarles said he would not judge the process initiated by the Fed to look at prospects for an official digital currency. “It would be an attractive target for cyber attacks and other security threats” or could be used to launder money, he pointed out. On the other hand, the main attraction of bitcoin “is being something new and its anonymity”, he highlighted.
“By definition, fashions pass. Bitcoin and coins of this type will almost certainly remain a risk and a speculative investment rather than a revolutionary form of payment,” concluded Quarles.
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