Federal Reserve Vice Chairman for Supervision Randal Quarles on Thursday threw cold water on the notion that digital currencies like bitcoin would somehow emerge as a competitor to the dollar or that the central bank might issue its own cryptocurrency.
Coming a day after several regional Fed presidents said that the central bank was thinking to think about its own digital currency, Quarles comments show there is currently deep skepticism about cryptocurrencies in Washington.
At the moment, bitcoin is just a media darling, Quarles said in a speech to a fintech conference in Washington.
Bitcoin BTCUSD, -5.30% , the No.1 cryptocurrency by market cap, has skyrocketed 1,000% this year — from just under $1,000 at the outset of 2017 to briefly topping $11,000 on Wednesday.
“In the U.S. payment system, digital currencies are a niche product that sometimes garners large headlines,” Quarles said.
“The ‘currency’ or asset at the center of some of these systems is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all. Indeed, how to treat and define this new asset is complicated,” Quarles said.
“While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage,” he warned.
If people lose faith in a digital currency, there could be a run like the bank runs seen earlier in our history, he said.
Quarles said there was also “a long list of risk issues” if a central bank issued digital currency to the general public.
“I am particularly concerned that a central-bank-issued digital currency that’s held widely around the globe could be the subject of serious cyberattacks and could be widely used in money laundering and terrorist financing,” he said.