Central bank digital currencies (CBDCs) can pose serious risks and would not solve the problems of the financial system, said the vice president of the United States Federal Reserve (Fed), Randal Quarles, in a speech at the Utah Bankers Association.
“Before being swept up in the novelty, I think we need to subject the promises of a CBDC to careful critical analysis,” he warned.
Quarles said the dollar is already “highly digitized” and expressed skepticism that a CBDC would help improve financial inclusion or reduce banking costs. Some of those problems may be better addressed with other solutions, such as broader access to low-cost bank accounts, the official said.
A Fed digital currency “would be an attractive target for cyber attacks and other security threats” or could be used to launder money, he said. In return, the main attraction of bitcoin “is its novelty and anonymity,” said Quarles.
A Fed-issued CBDC could also hamper financial innovation in the private sector and pose a threat to the banking system, which relies on deposits to issue loans, he said.
Although there is a very high bar to overcome, given the potential costs and security risks, Quarles said he would not prejudge the Fed’s recently initiated process to examine the prospects for official digital money.
‘Bad fashion’
The vice president of the US central bank also considered that the frenzy for digital, including calls to create official cryptocurrencies, may seem like an unfortunate fad.
“Gold will always shine but, by definition, fashions pass. Bitcoin and such currencies will almost certainly remain a risk and a speculative investment rather than a revolutionary means of payment,” he said.
When a fad like baggy skydiver pants appears in the 1980s, the consequences are merely “disconcerting or embarrassing,” but with a coin it could be more serious.
America’s centuries-long enthusiasm for novelties has been largely beneficial. Yet he warned that when this enthusiasm “is coupled with equally American susceptibility to novels and the fear of missing something, it has also at times led to a massive suspension of our critical thinking and occasionally impetuous and illusory fads or fads.”
With information from AFP and Reuters
