Mentioned at Bank for International Settlements Event
"Cryptocurrency is not a means of payment but serves as gold"
"Not currency but an asset"
Draws a line on digital currency adoption
"Digital currency promotion must be preceded by parliamentary legislation"
[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), warned about the risks of investing in cryptocurrencies. He stated that cryptocurrencies cannot replace the dollar and drew a line on the Fed's development of a digital currency.
On the 22nd (local time), Powell attended an event hosted by the Bank for International Settlements (BIS) and expressed concern, saying, "Cryptocurrencies are highly volatile. Americans need to recognize the risks of cryptocurrencies such as Bitcoin."
He referred to cryptocurrencies as "virtual assets," which the Fed prefers to call them, explaining that their high volatility makes it difficult for them to fulfill the basic function of money as a store of value.
He also evaluated that "cryptocurrencies are closer to gold than to the dollar."
Powell introduced that the Fed is also researching digital currencies. He explained that the Fed’s technology research lab is studying digital currencies, and that the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) are jointly researching digital currencies.
Powell stated, "We are testing the technology. No decisions have been made at this time." He added, "To proceed, approval from Congress, the government, and the broader public is necessary," and explained, "We have not yet started this public engagement process." He introduced that the research on digital currencies is also to understand their advantages and issues.
Powell expressed the view that the legislative process must come first for the introduction of a central bank digital currency. He emphasized that the role of Congress is important regarding digital currencies, not the Fed. He said, "We will not move without Congressional support. It is ideal to have a legal basis established."
Powell emphasized that despite China’s active stance on digital currencies, the Fed does not need to take the lead in introducing digital currencies.
He said, "There are still doubts about the need to complement the already efficient payment systems." He reminded that digital currencies could be exploited for hacking, money laundering, and terrorism. He also expressed concern about the possibility that digital currencies might escape central bank control. This reflects the position that there is no need to shake the current dollar-centered global reserve currency system.
Powell also expressed concerns about private companies such as Facebook pushing their own cryptocurrencies, mentioning that these will also require future financial regulatory oversight. He was wary of the emergence of currencies not related to banks. Facebook plans to launch its own cryptocurrency, Diem, this year.
He sharply stated, "Cryptocurrencies promoted by individual companies cannot replace a sound monetary system controlled by central banks."
Following Powell’s remarks, the price of Bitcoin has been declining. As of 3:30 PM, Bitcoin is trading in the $56,000 range, down 2.3% compared to 24 hours earlier.
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