James Bullard: Non-Uniform Currency Could Cause Serious Problems
Digital currencies could threaten the US Dollar
St. Louis Federal Bank President James Bullard said on Monday that digital currencies are creating a drift toward a non-uniform currency in the United States. Bullard was speaking during the history of economics of currencies conference in New York. He told those in attendance that private and public currencies can exist together in equilibrium and even enable facilitation of transactions which would not have occurred.
The president noted that currency competition in the United States caused more harm than good. He gave an example of 1830’s when 90 percent of the currency circulated in the United States was privately issued with the uniform greenback being used during the Civil War. According to James Bullard:
“During that time you would have Bank of America notes or even Wells Fargo banknotes, but they all traded at a discount.”
Currently, there are over 1800 digital currencies in existence and Bullard noted that with such a high number there is a risk of drifting back towards a similar case of exchange rate chaos. He added that customers could even find themselves holding different types of currencies for different or specific transactions with each currency trading at a different relative price. There could also be a risk of currency tanks where the currency would disappear with consumer’s savings.
James Bullard noted that: “Currencies should be reliable and should also maintain their value.” He used an example of hyperinflation rate in Venezuela. He added that these digital currencies are not fully approved and that transactions using them might be illegal.
Looking at Bitcoin which has a fixed supply of 21 million Bitcoin, but the system can still bifurcate leading to the creation of two fixed volumes of Coins. Bullard in his opinion problems with monetary policy is not mitigated by commodity-based cryptocurrencies or even money.
Bullard was joined by Diana Brandy, the founder of dbOmnimedia for a chat. Diana asked Bullard the only way to ensure a stable monetary system was through government control. In his reply:
“It had always been that way. I am not sure whether it will always be that way because maybe there are technological solutions.”
Currently, digital currencies are not a great threat to the Dollar because of their low transaction volumes. Bullard noted that: “The dollar is doing very well today and it will stay in great shape.” Moving forward popularity of digital currencies could usher in something like today’s global monetary system. He added that there are no single global currency and exchange rates even among major currencies can be volatile. He concluded by stating that: “The shift to a non-uniform currency could lead to a serious issue for the United States if digital currencies reach a large volume of trade.