Cryptocurrencies like Bitcoin are highly volatile and not a useful store of value as they’re not backed by anything, said Jerome Powell, chair of the U.S. Federal Reserve, in the opening session of the inaugural BIS Innovation Summit 2021.
“It’s more a speculative asset that’s essentially a substitute for gold rather than for the dollar,” Powell said, at the virtual event hosted by the Bank for International Settlements this week.
Stablecoins — cryptocurrencies that are designed to minimize price volatility by pegging to a fiat currency — may have a role to play in a national economy with appropriate regulation, Powell said, “but that role will not be to form the basis of a new global monetary system.”
The Facebook-backed Diem project, previously known as Libra, drew significant regulatory interest when it was first proposed in 2019 due to concerns about its potential impact on monetary sovereignty and monetary policy given Facebook’s global scale. Libra was initially envisioned to be a stablecoin backed by a basket of fiat currencies. However, the project has since evolved to one supporting single-currency stablecoins backed by fiat currencies such as USD, EUR and GBP as well as a multi-currency coin (XDX).
“The potentially fast and wide adoption of a global stablecoin, potentially a global currency governed only by the incentives of a private company is something that will deserve and will receive the highest level of regulatory expectations,” Powell said.
Jens Weidmann, president of the Deutsche Bundesbank concurred with Powell that stability is a precondition for central banks.
“You cannot have a useful means of payment or a store of value if the underlying asset is wildly fluctuating in value,” Weidmann said. “We [central banks] provide the stability to the system, but we can learn from those providers by looking at their technology and exploring whether this technology might make sense also in our environment,” Weidmann said.