New York: In an interview the New York Federal Reserve Bank published on its site on Friday, February 9, two of its economists have explained cryptocurrency, laying emphasis on its “trustless” nature, and being skeptical that cryptocurrency could ever “realistically compete with current payment methods.”
The two economists, Antoine Martin and Michael Lee, in the New York Federal Reserve Bank’s Research and Statistics Group, took turns to answer questions involving financial trust and basic concepts of cryptocurrency.
Michael, while talking on the concept that cryptocurrency is not “backed by anything real”, unlike gold, declared pointedly:
“You’re right that they [cryptocurrencies] are not backed by a physical commodity, but then neither is the dollar and most other modern currencies.”
Michael added that trust people have in a given currency is what gives the currency its value and makes it an “acceptable medium of exchange” in a payment environment. However, in the case of cryptocurrencies, the trust is not offered by any given institution or government, but by Blockchain technology itself.
Would cryptocurrencies ever become the “future of money”? When giving his response to this question, Antoine, however, remained skeptical, stating that the issues that cryptocurrency supposedly solves may not actually need solving, especially in “advanced economies”:
“Cryptocurrencies arguably solve the problem of making payments in a trustless environment, but it is not obvious that this is a problem that needs solving, at least in the United States and other advanced economies.”
He also mentioned that “extreme volatility”, lack of “convenience” and trust are major factors that will prevent cryptocurrencies from being adopted conventionally as a currency, stating:
“people do tend to trust financial institutions to handle payments and central banks to maintain the value of money”.
There was a disclaimer at the end of the interview that made it clear that the Fed’s economists’ opinions “do not necessarily reflect” the official position of the New York Federal Reserve Bank or the Federal Reserve System as a whole towards cryptocurrency.
Do you think advanced economies would need cryptocurrency? Tell us in the comment box.
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