Calling Bitcoin as too volatile and unassisted a currency for mainstream adoption, United States Federal Reserve chair, Jerome Powell, says it could be “a substitute for gold” but not the dollar.
Powell reiterated his opinion last Monday at an event hosted by the Bank for International Settlements (BIS), speaking frankly when questioned about the stability rendered by crypto. According to him, Bitcoin poses a threat to global financial stability and hence cannot be perceived as “a store of value”.
Powell Talks About Bitcoin’s Volatility
In response to a query about Bitcoin’s impact on financial constancy, Jerome Powell cited learnings from legacy finance figures to express his opinion on cryptocurrency’s volatility. He said:
“Crypto-assets – we call them ‘crypto assets’ – they are highly volatile, see Bitcoin, and therefore not useful as a store of value, and they are not backed by anything… They are more of an asset for speculation, so they are not particularly in use as a means of payment. It is more a speculative asset; it is essentially a substitute for gold rather than the dollar.”
Powell’s comment is one of the most recent public expressions of the Fed’s opinions on cryptocurrency and is in line with a 2019 tweet on a similar stance. The statement, however, is in stark contrast to Treasury Secretary Janet Yellen’s recent perspective on decentralized cryptocurrencies, which are more on the positive side.
However, both Powell and Yellen seem to converge in cryptocurrency’s potential status as a substitute for gold worldwide.
What Makes Crypto So Different from Fiat?
Notably, Jerome Powell stated that Bitcoin is far from being considered a substitute for the dollar. Along with BIS General Manager, Augustin Carstens, and President of the German Federal Bank, Jens Weidmann, Powell scrutinized stablecoins based on the current trend of central bank digital currencies or CBDCs.
The speakers discussed known statements on the separation of private stablecoins and bank-operated CBDCs. Here is a glimpse:
“To the extent, a stablecoin is backed by sovereign currencies of leading nations, that is certainly an improvement over crypto assets, I would say”, Powell said. “But nonetheless, where is the credibility coming from? It comes from that sovereign currency that is the backstop.”
Talking about the distinction between fiat currencies and cryptocurrencies, he said the former is “issued with the benefit of the public in mind.” This is another reason why he believes that Bitcoin, with its volatile nature and “lack of backing” cannot substitute the dollar. Fiat currencies, running the global financial system presently and in the future, need to rest on the pillars of stability, support, and wide, if not universal, acceptance.