Federal Reserve Chairman Jerome Powell weighed in on cryptocurrency and the prospects of a "digital" dollar" on Monday. Powell struck a cautious tone, warning the public of the risks involved in the trading/holding of cryptocurrency.
Powell spoke as part of a virtual panel on digital banking hosted by the Bank for International Sentiments, where the chairman spoke on cryptocurrency and the potential for a Fed-backed issuance cryptocurrency. Powell's stance on cryptocurrency appears to be largely cautious, something signaled by his preference to use the term "crypto asset" instead of cryptocurrency, something he attributes to the volatility of cryptocurrencies, which makes storing value difficult.
"They're highly volatile, see Bitcoin, and therefore not really useful as a store of value," Powell said. "It's more a speculative asset that's essentially a substitute for gold rather than for the dollar."
Powell's urge for caution is understandable given the rapid and massive fluctuations cryptocurrencies are capable of, such as Bitcoin's January price correction, which saw the currency hit a record peak of $40,000 before a massive price correction forced it back down to $32,000 within the same day, the largest single-day drop so far.
As for a Fed-backed crypto asset, Powell does not expect one anytime soon, nor does he see the need to be the first central bank to do so. "You can expect us to move with great care and transparency," Powell said, while also stressing that there would need to be a considerable buy-in from both the American public and approval from Congress before the Federal Reserve considered it.
Currently, the Fed is evaluating whether there is a public need/desire for a backed cryptocurrency. Efforts by the Fed's board to experiment and evaluate a "digital dollar" are being supported by an ongoing partnership between the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology.