The growth of bitcoin and other digital currencies is working against the need for the creation of a market-based currency-trading system that offers consistent pricing, James Bullard, the head of the St. Louis Federal Reserve Bank, said on Monday.
The new cryptocurrencies are creating a “non-uniform” currency, something that existed in the past but was ultimately rejected and replaced, Bullard said in a speech at the CoinDesk Consensus 2018 conference.
He described a non-uniform system as one in which many types of currencies trade at the same time at different prices in the same local market, saying that both consumers and businesses may not like such a system.
“Cryptocurrencies may unwittingly be pushing in the wrong direction in trying to solve an important social problem, which is how best to facilitate market-based exchange,” Bullard said.
Unlike stocks, for instance, which trade on exchanges, allowing all investors to see uniform pricing, foreign currencies trade in myriad transactions without any central exchange providing a single snapshot of prices.
Bullard noted that over 1,800 cryptocurrencies have been launched worldwide since bitcoin was created in 2009.
He contrasted that market with the use of a uniform currency such as the U.S. dollar, which is backed by the government and supported by a stable monetary policy from the Federal Reserve.
Cryptocurrencies like bitcoin are powered by blockchain, a shared database that is maintained by a network of computers connected to the internet.
But while Bullard highlighted disadvantages of cryptocurrencies, he acknowledged the promise of blockchain and related technologies that support cryptocurrencies, though he said he has not seen “any technological solution that will make everybody perfectly happy.”
In a moderated question-and-answer session after his speech, Bullard reiterated that the U.S. dollar will remain the dominant currency in the world because it comes from the world’s biggest economy, is easily tradable and is backed by the Fed, the most powerful central bank.
No cryptocurrency can top that, he said.
Bullard said he is open to studying the possibility of the U.S. central bank’s issuing its own cryptocurrency, the “Fedcoin,” but said he sees no advantage for the Fed to do so.
He told reporters after his speech that the Fed was very much open to using blockchain technology, though he provided no details on how the Fed might use blockchain.
“The Fed is not a monolithic organization. We have different businesses - we have cash, we have payments, we have monetary policy, and regulation as well,” Bullard said.
“It is possible that blockchain will have a role in the future of any of those,” he said.
The Fed has different units at the Fed, from different perspectives looking at this technology, he added.