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- Cryptocurrencies like bitcoin are too volatile to replace the dollar, Fed Chairman Jerome Powell said Monday.
- Bitcoin has risen in price as companies, including Tesla and Square, invest in the sign.
- The Fed is still investigating use cases for a digital currency issued by the central bank, Powell said.
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Federal Reserve Chairman Jerome Powell said Monday that while the central bank is still exploring the potential for a central bank digital currency, cryptocurrencies such as bitcoin may not be an effective substitute for the US dollar. not.
Bitcoin has gained new notoriety over the past year as the adoption of cryptocurrencies by large companies has caused prices to rise. Companies, including Tesla, MicroStrategy and Square, have all invested in the token. Meanwhile, players in the financial sector are excited about using cryptocurrencies as an alternative asset.
The positive developments raised bitcoin to $ 61,742 earlier this month as more investors wanted to profit from the token’s growing popularity.
Powell doubts about cryptocurrencies and their alleged use cases. The tokens may be a substitute for gold, but their wild price fluctuations make it unsuitable to replace the dollar, the central bank chief said during a teleconference hosted by the Bank of International Settlements.
“Crypto-assets are very volatile – see bitcoin – and therefore not really useful as a value store,” Powell said according to MarketWatch. “They are not supported by anything. They are more an asset to speculation.”
Bitcoin fell slightly that day after Powell’s comments. The cryptocurrency traded just over $ 57,000 from 2:30 p.m. ET, rising about 98% year-on-year.
Although cryptocurrencies are unlikely to gain the Fed’s favor, the central bank has considered creating its own currency. The Fed is working with MIT researchers in August to set up and test a central bank’s digital currency. Officials were trying to gain a better understanding of digital currencies and their potential implementation through the tests, Fed Governor Lael Brainard said at the time. However, the sign included in the study was only ‘hypothetical’, she added.
Powell reiterated that although the bank is still studying the potential for a digital dollar, it needs to be seriously scrutinized before implementing such a currency.
“To continue this, we need a purchase from Congress, from the government, from broad elements of the public, and we have not really started public engagement yet,” the Fed chairman said. “Because we are the world’s most important reserve currency, we do not have to rush into this project. We do not have to [need] to be first to market. ‘
Somewhere between the central bank’s digital currency and cryptocurrencies, there are stable currencies. These signs counteract the volatility that occurs with cryptocurrencies by linking their value to more stable assets such as government-issued currencies.
Stable currencies are an ‘improvement’ in terms of cryptocurrencies and may play a role in the digitalisation of the dollar, but that is probably not the basis for a global payment system, Powell said. Every candidate for a global currency controlled by a private company deserves ‘the highest level of regulatory expectations’, he added.