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Fed’s Brainard doesn’t see US threatened by foreign-backed cryptocurrencies

By October 4, 2018 No Comments

Federal Reserve governor Lael Brainard on Wednesday downplayed the risk that cryptocurrencies backed by foreign governments could pose to the U.S.’ prominent role in the global financial system.

“I think the role of the dollar as the world’s reserve currency is very strong,” Brainard said when asked about the topic at an event on the payments system hosted by the Federal Reserve Bank of Chicago. “There are a whole host of factors that will continue to make the dollar an important reserve currency, really for the world.”

Brainard added that she doesn’t take the significant role the U.S. and the dollar play in the global financial system “for granted,” but added: “It goes well beyond any particular technology to the role of U.S. financial markets in the global system, as well as the role of the U.S. economy,”

The Fed has set a goal of making payments in the U.S. as close to real-time as possible in the near future. Today, while consumers may see near-instantaneous changes to their balances through digital payments, much of the system effectively consists of IOUs that can take multiple days to clear.

Cryptocurrencies, at least loosely modeled after Bitcoin, have been suggested as one such possibility by enthusiasts for the technology, but the U.S. central bank has said it has no plans to introduce its own cryptocurrency. Countries affected by U.S.-led financial sanctions have toyed with the idea of issuing government-backed cryptocurrencies to avoid those penalties, but it’s unclear how serious those efforts are and to what extent they could effectively avoid sanctions.

Venezuela’s government went so far as to introduce a cryptocurrency it claimed is backed by its vast oil supply earlier this year, but the Trump administration quickly sanctioned the new currency, and investor interest has lagged, thanks to the legal risk and doubts about the fledgling digital currency’s structure.

Brainard was asked the foreign-government-backed cryptocurrency question after she delivered a speech on the importance of increasing the speed of payments and settlements, especially for lower-income Americans and U.S. residents.

“Faster payments would allow consumers to send and immediately receive payments any time of the day, any time of the year,” said Brainard, emphasizing that could help improve the cash flow of individuals and families who don’t have much in the way of savings.

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