The
Chairman of the United States Federal Reserve has said that a globally
adopted cryptocurrency system could conceivably remove the need for
reserve currencies.
Testifying
before the Senate Banking Committee on July 11, Fed Chairman Jerome
Powell gave his analysis of whether a cryptocurrency system with global
prevalence could diminish — or even go so far as to remove the need for —
so-called anchor currencies.
With the U.S. dollar de facto the
world’s dominant reserve currency, Powell acknowledged the possibility
of a preeminent cryptocurrency redrawing the current financial landscape
— yet noted that as of yet, this has stopped short of becoming a
reality. The Fed chairman said:
“I think things like
that [the obsolescence of today’s reserve currencies] are possible but
we really […] haven’t seen widespread adoption. Bitcoin is a good
example, almost no one uses it for payments [...] it’s a speculative
store of value like gold.”
Powell’s
comparison is noteworthy given the Federal Reserve Bank of New York’s
role as a custodian for the gold held by entities such as the U.S. and
foreign governments, other central banks, and official international
organizations.
Powell acknowledged that the prospect of
cryptocurrencies coming to replace reserve currencies has been implied
since their inception and that its realization could see the global
financial system — and specifically the Federal Reserve System —
profoundly transformed. He noted:
“People have been
talking about this since cryptocurrencies emerged, but we haven’t seen
it. That’s not to say we won’t — and if we do, then yes, you could see a
return to an era in the United States where we had many different
currencies, in the so-called national banking era.”
As reported,
Powell had testified before the House Financial Services Committee
earlier this week and acknowledged that the impact of Facebook’s
forthcoming stablecoin Libra could be of a “potentially systemic scale”
for the global financial and regulatory landscape.
In China, central banking veterans have characterized
the widespread anticipation of Libra as being “inseparable from the
global dollarization trend,” and stressed that Beijing should respond
with precautions and rigorous policy research to seek to maintain a
strong monetary status.
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