A governor of the Federal Reserve has discussed how cryptocurrencycurrency affects the supremacy of the US dollar. He also voiced doubts on the necessity of a central bank digital currency (CBDC) for the United States and declared his opposition to banks using bitcoin exchange-traded funds (ETFs) as their main asset.
Fed Governor on US Dollar, CBDC, and Cryptocurrencies
At the “Climate, Currency, and Central Banking” symposium on Thursday, which was organized by the Global Interdependence Center and the University of the Bahamas, Federal Reserve Governor Christopher J. Waller spoke on a range of subjects. He talked about a number of topics, including his thoughts on recently authorized spot bitcoin ETFs, the Fed’s possible issuance of a central bank digital currency (CBDC), and the possible effect of cryptocurrencycurrencies on the supremacy of the US dollar.
Waller cited concerns expressed by some that the U.S. dollar would lose its hegemony and explained that these concerns were caused by a number of things, such as sanctions against Russia, political dysfunction in the United States, the rise of digital assets, China’s efforts to promote the yuan and its currency, and the possibility of “geoeconomic fragmentation,” which could be detrimental to the dollar’s position as the world’s reserve currency.
The Fed governor addressed the possibility that cryptocurrencycurrency will lessen the USD’s hegemony by stating: “A shifting payments landscape for example, the rapid growth of digital currencies could reduce reliance on the U.S. dollar.” He mentioned:
People often conjecture that cryptocurrencycurrencies like bitcoin may replace the U.S. dollar as the world’s reserve currency.
He went on to clarify why, in his opinion, the dominance of the US dollar is still secure. “Almost 99% of stablecoin market capitalization is linked to the U.S. dollar, meaning that cryptocurrency-assets are de facto traded in U.S. dollars,” Waller said. “Most trading in decentralized finance (defi) involves trades using stablecoins, which link their value one-for-one to the U.S. dollar.” “It is likely that any expansion of trading in the defi world will simply strengthen the dominant role of the dollar,” the Fed governor said in his conclusion.
Overall, he stated: “I do not anticipate that the United States dollar will soon cease to be the world’s reserve currency, nor will its importance in trade and finance significantly decline.” If anything, that position has been reinforced thus far by recent events that some have worried could jeopardize it.
Waller was questioned concerning the Fed’s efforts to create a digital currency issued by a central bank during the conference’s Q&A period. The Fed governor reiterated his position and questioned the necessity of a CBDC in the United States, posing the question, “What is the major market failure in the payment system that requires a CBDC and only a CBDC to solve?” He reiterated that there was no compelling response to his query, which strengthened his argument against the Fed establishing a digital currency.
In response to a query about if his opinion on cryptocurrencycurrency has changed now that spot bitcoin ETFs have been approved by the U.S. Securities and Exchange Commission (SEC), Waller restated his stance from a year prior, saying that “cryptocurrency, bitcoin, ethereum, or dogecoin, or whatever you want to call them” are like baseball cards to him. He emphasized that they had no intrinsic value and advised people to purchase them in the hopes that someone else will pay more in the future. The governor of the Fed stated:
If people want to trade baseball cards with an ETF, I don’t really care. I don’t mind if they choose to trade cryptocurrencycurrency using an ETF. For the usual safety and soundness issues, I don’t necessarily want banks or some pension funds to retain a large portion of this as their primary asset.
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