Digital currencies are not yet ripe for consumer adoption: Federal Reserve Governor Lael Brainard

Listing out the serious challenges posed by digital currencies, Federal Reserve Governor Lael Brainard opined blochain technology, the underlying technology that powers them, could be harnessed for facilitating and easing bank-to-bank transactions, as well as for payments in financial markets.

In what is likely to be one of the Federal Reserve’s most detailed critiques of cryptocurrencies to date, Federal Reserve Governor Lael Brainard said digital coins pose “serious” challenges; she however dismissed the possibility that the Fed could enter the market.

“There is no compelling demonstrated need for a Fed-issued digital currency,” said Brainard. “Although central bank digital currencies may be able to overcome some of the particular vulnerabilities that cryptocurrencies face, they too have significant challenges related to cybersecurity, money laundering, and the retail financial system.”

So far, entrepreneurs have created a wide variety of new digital options which go beyond bitcoins, the bulk of which have so far largely escaped any concerted crackdown by regulators.

Brainard’s objections to digital currencies, including bitcoin, are although along expected familiar lines they are however noteworthy since they reveal the extent to which Fed officials are monitoring and doing research in the field.

Pointing out the deficiencies of Bitcoin, Brainard said, since it is so volatile, it limits its usage as money; the anonymity that is central to it allows it to be exploited by money launderers; since there is no central governing authority, it opens consumers to theft and errors that they can do little about.

“Cryptocurrencies are strikingly innovative but also pose challenges associated with speculative dynamics, investor and consumer protections, and money-laundering risks,” said Brainard.

Brainard however tempered her criticism with a remarks which highlight the potential of the underlying technology which could have application for bank-to-bank transactions, as well as for payments in financial markets.

She went on to add, although digital currencies are problematic, they are currently so minuscule and play such a small part in the overall financial system that they pose little stability risks.

Her remarks goes to suggest that digital currencies are not yet ripe for consumer adoption.

“In addition to losses, individual investors should be careful to understand the potential for other risks,” said Brainard.

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