The president of the Federal Reserve Bank of St. Louis, James Bullard, says that most cryptocurrencies are “worthless.” He noted that if “cryptocurrency can facilitate transactions that are difficult to make in conventional currencies, then they will have a purpose and might circulate alongside the nation-backed currencies.”
Fed’s Bullard Says Most Cryptocurrencies Are Worthless
Jim Bullard, President of the Federal Reserve Bank of St. Louis, talked about inflation risks and what lies ahead for Fed policy in an interview with Yahoo Finance on Monday.
He also talked about cryptocurrency, given the high volatility in crypto prices observed over the past weeks. He was asked, “What are your views on cryptocurrency, its use case right now, and … how closely have you been watching a lot of the volatility in crypto markets?”
Bullard replied: “I have a slide deck on this that’s called ‘non-uniform currency and exchange rate chaos’ and a couple of things that are in there. One is that currency competition is nothing new. Private currency issuance has been addressed historically in monetary theory.”
He continued, “Milton Friedman said if you allow private currency issuance, you’ll get all kinds of private currencies being issued. And that’s exactly what has happened,” adding:
We have a couple of thousand of these around, most of them are worthless.
“I think if the cryptocurrency can facilitate transactions that are difficult to make in conventional currencies, then they will have a purpose and might circulate alongside of the nation-backed currencies,” he noted.
Bullard proceeded to discuss the volatility in the crypto market. He said cryptocurrencies are “also quite volatile, as it’s been very apparent here in recent days.” However, he emphasized: “But the fact that different currencies have volatile exchange rates, that’s a fundamental problem in the international monetary order and it’s just that much bigger of a problem for privately issued currencies.”
He added that “it’s even a problem for nation-state type currencies where they trade in a volatile way against each other that seems to be distant from actual movements and fundamentals,” elaborating:
So lots of interesting things going on in this space and of course the Fed is also looking at a Fed coin. So we’ve got a lot going on, watching this very carefully. And I guess … in a nutshell that’s where I’m at on this.
Following his comment that most cryptocurrencies out there are worthless, Bullard was asked whether it presents a financial stability risk.
He replied: “We hope that those that are involved know the risks. Of course, any investment that you do can go up but it can go down as well. And so anybody that’s putting a portfolio together has to balance the risk and reward as always in finance.” The president of the Federal Reserve Bank of St. Louis concluded: “I think, for the most part, people like going into this with eyes wide open, they’re certainly not blind to the idea that this is a volatile area.”
Bullard recently said that he is confident that bitcoin is not a threat to the U.S. dollar. Last week, he said that the recent cryptocurrency sell-off was not a systematic concern for the Fed and did not affect the central bank’s policies.
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