Digital currency craze might be like bad fashion fad: Fed’s Quarles
Jun 29, 2021 - 04:12 AM
WASHINGTON — The current craze over all things digital, including calls for official crypto currencies, may have similarities with an unfortunate fashion fad, a top Federal Reserve official said Monday.
While “America’s centuries-long enthusiasm for novelty” has been mostly beneficial, Fed Vice Chair Randal Quarles warned that “when coupled with an equally American susceptibility to boosterism and the fear of missing out, it has also sometimes led to a mass suspension of our critical thinking and to occasionally impetuous, deluded crazes or fads.”
Central bank digital currencies (CBDCs) could pose serious risks and may not solve any problems with the existing financial system, Quarles said in a speech to the Utah Bankers Association.
He repeated his skepticism about the need for a US CBDC and tamped down what he views as “fever pitch” enthusiasm for the concept.
When it comes to the fleeting craze over baggy parachute pants in the 1980s the consequences are “merely puzzling or embarrassing,” but with a currency it could be more serious.
“Before we get carried away with the novelty, I think we need to subject the promises of a CBDC to a careful critical analysis.”
While there is a high bar to clear given potential costs and security risks, Quarles said he would not prejudge the Fed’s recently-initiated process to examine the prospects for an official digital money.
A Federal Reserve CBDC could “present an appealing target for cyberattacks and other security threats,” or be used for money laundering, he said.
Meanwhile, the main attraction of bitcoin and other cryptocurrencies “are its novelty and its anonymity,” Quarles said.
“Gold will always glitter, but novelty, by definition, fades. Bitcoin and its ilk will, accordingly, almost certainly remain a risky and speculative investment rather than a revolutionary means of payment.”