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Federal Reserve Governor Points to Challenges with Cryptocurrencies

 

Speaking at a Feds conference in San Francisco, the Federal Reserve Governor Lael Brainard is quoted by Reuters as saying “cryptocurrencies are strikingly innovative but also pose challenges associated with speculative dynamic, investor and consumer protection, and more laundering risks.” While she admitted these challenges, she fell short of out rightly downplaying the viability and immense potential of the cryptocurrencies market.

 

Brainard reportedly took a considerable amount of time to expatiate on the Federal Reserve`s views on cryptocurrencies. She noted that her outfit was giving some more attention to fully understanding the dynamics of cryptocurrencies and the market that facilitates same.

 

In spite of the fact that Policy makers in the recent past have not been that enthused about the cryptocurrencies market and seemed to have been hesitant in engaging it, there appears to be an increasing change in attitude towards the cryptocurrencies market as it experiences such rapid growth that cannot be ignored. The president of St. Louis Federal Reserve Bank, James Bullard was present at the Consensus 2018 conference in New York barely a week ago.

 

Risks and Benefits

Quite clearly, the Federal Reserve has some reservations. It admits some possible benefits that may accrue to the cryptocurrencies market but more importantly mentions a lot more risks associated with the operations of the cryptocurrencies market. The Feds contend that the risks far outweigh the benefits. A couple of risk factors were identified by Brainard at the Feds Conference in San Francisco.

Some of the risks associated with cryptocurrencies identified include the high proclivity for fraudsters to outwit and outsmart the system principally because of its inherently anonymous features and the lack of centralized supervision. This makes clients (consumers and investors) susceptible to the activities of fraudsters.

 

The Federal Reserve Governor also re-echoed what has been considered the posture of many policymakers when she minced no words in admitting that in spite of the risks associated with the cryptocurrencies market, the global economy is stable and resilient, and will remain so for a long while. This she noted is so because the cryptocurrencies market encompasses a relatively small segment of the global economy.

 

The issue of Fedcoins

Speculations about Febcoins seemed far from over, especially when the attendance of James Bullard to the Consensus 2018 conference resulted in heightened speculations among market participants. Brainard touched on Fedcoins in her presentation. She downplayed the need for the issuance of Fedcoins when she noted that “there is no compelling demonstrated

need for a Fed-issued digital currency.”

 

Former Federal Reserve Governor Keven Warsh views the issue of Fedcoins differently. The New York Times reports Warsh noted that if he was still at the helm of affairs at the Federal Reserve, he will put together a team to explore the potential benefits that may accrue to a Fedcoin; one that will not replace fiat money but will simply be supplementary to it.

Warsh foresees an introduction of “legal activities into a digital coin” through a Fedcoin. That however remains his personal view – a view that does not seem to find support from the current Federal Reserve leadership.