U.S. Federal Reserve Doesn't Like the Idea of a Government Cryptocurrency

The Federal Reserve Board governor is still not fond of the idea of central bank digital currencies, despite the fact that the reserve is equipped to issue one.

Despite the number of advocates promoting the benefits of cryptocurrencies, there is still a long way to go before major financial institutions decide to enter the market.

Quartz reported on Dec. 27th that back in May 2018, Lael Brainard, a Federal Reserve Board governor, spoke at the Decoding Digital Currency Conference in San Francisco, where she delivered a speech criticizing cryptocurrencies and their lack of transparency.

Citing the high price volatility of cryptocurrencies such as Bitcoin, Brainard said that such coins couldn't be used as a store of value or a unit of account.

Raising concerns about how a national digital currency would affect retail banks, which make loans to the public, Brainard said that the Federal Reserve maintains that issuing central bank digital currencies is generally a bad idea.

The subject of central bank digital currencies got a lot of media traction after Christine Lagarde, the director of the International Monetary Fund, supported the idea at the Singapore Fintech Festival in November.

Lagarde highlighted some of the benefits that national cryptocurrencies would bring, saying that they could solve the problems of financial inclusion and privacy, as well as security and consumer protection.

Even Kevin Warsh, a former governor at the US Federal Reserve, who was among the candidates to become the new chairman of the Reserve, was in favor of the idea.

According to Quartz, the blockchain-based "Fedcoin" had the potential to improve the transparency and efficiency of the U.S. dollar and could have given the Federal Reserve access to unconventional financial tools, such as negative interest rates.

"Cryptocurrency is still a very young technology and there are large operational risks. Overall, we believe that the call for a 'Fedcoin' or any other central bank cryptocurrency is somewhat naïve."