Fed’s Powell: Public should understand risks of Bitcoin
WASHINGTON (AP) — Federal Reserve Chair Jerome Powell said Monday that the U.S. public needs to understand the risks behind Bitcoin and other crypto currencies, even as the central bank itself is studying the potential costs and benefits of a digital dollar.
Powell said the Fed prefers to call crypto coins “crypto assets,” because their volatility undermines their ability to store value, a basic function of a currency.
“They’re highly volatile, see Bitcoin, and therefore not really useful as a store of value,” Powell said in remarks to a virtual summit hosted by the Bank for International Settlements. “They’re more of an asset for speculation. So they’re also not particularly in use as a means of payment. … It’s essentially a substitute for gold rather than for the dollar.”
Bitcoin has soared nearly ten-fold in value compared with a year ago, hovering around $57,000 on Monday. That is up from $5,830 in March 2020. It is often seen as a hedge against inflation, and inflation fears have risen as the Fed has kept its short-term benchmark interest rate pegged near zero for the past year. The Fed is also injecting $120 billion into the banking system each month by purchasing Treasurys and mortgage-backed securities.
While Bitcoin is rarely used in transactions, that could change. Electric car maker Tesla said last month that it was buying $1.5 billion of Bitcoin and would soon accept Bitcoin payment for its cars.
Powell also said the Fed is researching the potential for a central bank digital currency, though he added that the Fed is not yet near a decision about implementing one.
“We’re not in a mode of trying to make a decision at this point,” he said. “We are experimenting with technology.”
But Powell added that given the dollar’s critical role as the world’s leading reserve currency, the Fed has “an obligation to be on the cutting edge” of understanding the costs and benefits of a central bank digital currency, or CBDC.
At the same time, Powell said there was no need for the Fed to rush or “be first to market.” Many other central banks are exploring CBDCs, including China’s, and some observers worry China is ahead of the U.S.
Powell said the Fed is conducting research through an in-house technology lab, and also collaborating with MIT through the Federal Reserve Bank of Boston, one of its 12 regional Fed banks.
“The real threshold question for us is, does the public want or need a new digital form of central bank money to complement what is already a highly efficient, reliable and innovative payments oriented system?” Powell asked.
There are risks and benefits to digital currencies, the Fed chair said. The benefits include a “more efficient, more inclusive payment system,” while the risks involve cyber attacks, money laundering and terrorist financing.
There is also the risk that a digital currency could be held by individuals electronically and could therefore bypass banks.
“We don’t want to compete with banks for funding,” Powell said.
Ultimately, Powell said that Congress would likely need to pass legislation allowing a CBDC before the Fed would create one.
“We would not proceed with this without support from Congress, and I think that would ideally come in the form of an authorizing law,” Powell said.
The Fed chair also expressed some concerns about so-called “stablecoins,” which are digital currencies that are pegged to the value of government-backed currencies such as the dollar or euro. Facebook’s Libra, which it now calls Diem, is an example of a stablecoin.
“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. “Private stable coins are not going to be an appropriate substitute for a sound monetary system based in central bank money.”
Canadian bank plans to launch CAD stablecoin
Today, Canada’s VersaBank announced plans to issue a Canadian dollar stablecoin VCAD, one-to-one backed by a Canadian dollar deposit at the bank. If you haven’t heard of the chartered bank before, it’s because it’s not Canada’s biggest, with a market capitalization of CAD 288 million ($229 million). The bank also wants to leverage its own “digital bank vault” technology created by its subsidiary DRT Cyber.
To issue the stablecoin, it has partnered with Stablecorp, a joint venture between crypto asset manager 3iQ and Mavennet. The latter is known for developing blockchain applications for enterprises such as steel and oil traceability for the Canadian and U.S. governments.
VersaBank doesn’t intend to deal with end-users directly. Instead, it will issue stablecoins to “financial intermediary partners” in exchange for Canadian dollar deposits. In turn, those intermediaries can offer the redeemable stablecoin to consumers and businesses.
“As North America’s first bank-issued “stablecoin”, VCAD offers consumers and businesses the ability to adopt and leverage the benefits of digital currency and blockchain-based assets without the volatility of traditional currencies, alongside the security of a value-backed asset that the cryptocurrency world has long demanded,” said David Taylor, President of both VersaBank and its cyber security subsidiary, DRT Cyber.
VersaBank and StableCorp also plan to offer VUS and VEuro stablecoins in future.
StabeCorp’s CEO Jean Desgagne is an accountant and Vice Chair of Ontario’s accounting body. He also chairs the internal audit committee for the IT Sector of the Province of Ontario. StableCorp already has its own stablecoin, the QCAD.
Meanwhile, JP Morgan is looking to ramp up its JPM Coin activities. To date, the JPM Coin would be classed more as a settlement token than a pure stablecoin in that it is used to convert part of a company’s bank balance into a coin for the purposes of payments, and converted back to a bank balance by the recipient. JPM Coin is also being used in an interbank multi-currency payments network being developed in Singapore.
BoT warns against any use of THT stablecoin
BoT warns against any use of THT stablecoin
The Bank of Thailand is warning people to refrain from participating in any activities involving Thai Baht Digital (THT), as there are no legal assurances or protection with it and users could be at risk of cybertheft or money laundering.
Pruettipong Srimachand, the central bank’s assistant governor of the legal group, said any activities involving the new stablecoin THT that was created abroad on the Terra platform are considered illegal. The creation, issuance, usage or circulation of any material or token for money is a violation of Section 9 of the Currency Act 1958.
The central bank said recent developments have seen the private sector attempting to create cryptocurrencies using underlying assets or fiat currencies as an anchor to minimise price volatility. Such cryptocurrencies are known as stablecoins.
More recently, a new form of stablecoins using underlying algorithmic smart contracts was created to replicate the price and movement of various currencies. One unit of the stablecoin THT is denominated in and valued at one baht. Although THT is not used as a medium of exchange, it could cause fragmentation of the Thai currency system should THT or other stablecoins come to replace, substitute or compete with baht issued by the central bank, he said.
“Such usage would ultimately affect the general public’s confidence in the stability of the national currency system, which is the cornerstone of all economic activities,” said Mr Pruettipong.
In a separate development, the Bank of Thailand announced it plans to stop using Thai Baht Interest Rate Fixing (THBFIX), the existing reference rate which incorporates the London Interbank Offered Rate (LIBOR) for interest rate calculation, after June 30, 2023, in line with the upcoming plans to phase out the LIBOR.
The central bank is the THBFIX regulator and it uses the US dollar LIBOR format to calculate rates. The bank announced it will inform commercial banks of the terms of the THBFIX rate through existing channels until its usage comes to an end.
The Bank of Thailand plans to stop new TBHFIX-based financial calculations including loans, debentures and derivatives from July 1 of this year.