During a conference held in New York this week, Lael Brainard, a member of the United States Federal Reserve’s Board of Governors, said the cryptocurrencies such as Bitcoin could not be treated as a threat for the stability of the US economy, even though they present numerous risks for the individual investors.
During her speech, Brainard dismissed the claims that the cryptocurrencies effectively interfere with the economic movements of the country since they are normally not used as a method of payment. Likewise, she called on the investors saying they should be aware of the risks the cryptocurrency market implies because of its high level of speculation.
Brainard said: “One area that the Federal Reserve is monitoring is the extreme volatility evidenced by some cryptocurrencies. For instance, Bitcoin rose over 1,000 percent in 2017 and has fallen sharply in recent months. These markets may raise important investor and consumer protection issues, and some appear especially vulnerable to money-laundering (BSA/AML, or Bank Secrecy Act/anti-money laundering) concerns. As in other highly speculative markets, individual investors should be careful to understand the possible pitfalls of these investments and the potential for losses. But it is less clear how the valuations of cryptocurrencies currently could pose a threat to financial stability. For instance, it is hard to see evidence of substantial leverage used in the purchase of the cryptocurrencies, or a material degree of use in payments, although our assessment of these markets is limited by their opacity. Nonetheless, we will continue to study them.”
Brainard added that one of the motives that impulsed the Federal Reserve to pay attention to the cryptocurrencies is their ability to be used for money laundering operations. This is a concern often expressed by numerous regulatory entities from around the world, which led to the development of a platform whose goal was to develop measures that would establish international standards against this type of crimes.
According to Brainard, the investors did not invest large amounts of fiduciary money in cryptocurrencies. The cryptocurrency market transformed into a store of value. The fact that Bitcoin is used as a store of value just like gold seems contradictory, because the intention of Satoshi Nakamoto, the creator of Bitcoin, was to create a cryptocurrency that would be used as a decentralized method of payment.
The Federal Reserve will keep monitoring the cryptocurrency ecosystem in the future.
The objective of the conference during which Brainard gave her speech was to share current views on the financial stability of the Federal Reserve. The main points of the discussion were related to the traditional assets and the development of new actions in relation with the inflation.