Cryptocurrencies and blockchain are techniques that will change the world forever. But so was the internet during the DotCom bubble. Only time will tell how the coming years will unfold. But we can go by what influential people say. This time it is the turn of a governor of the US central bank.
Federal Reserve Governor Christopher Waller spoke during an online discussion with “CB and DC‘, a kind of forum set up by a number of central banks and universities. The Bank of Canada and the BIS (Bank for International Settlements) among others. Waller sits on the board of the Federal Reserve and therefore has a say in what happens with monetary policy in the US. Surprisingly, he called blockchain technology “vastly overvalued.”
CBDC solution looking for a problem
Not only is he skeptical of cryptocurrencies, he is even critical of the Federal Reserve’s own CBDC research papers. He calls the studies “infomercials.” According to him, they add little because the studies extensively mention all the ‘bells and whistles’ to distract consumers from whether they actually need it in practice.
He also emphasizes that the Federal Reserve has historically had a background role in markets. He doubts there will be any reason for central banks to roll out Central Banks Digital Currencies (CBDCs). “What problem in financial markets would lead to replacing a 100-year-old system with a retail CBDC?” he wondered. He therefore sees it rather as a solution that is looking for a problem.
Competition from stablecoins
Gary Gorton, a professor of finance at Yale University, has a different perspective. Every government on Earth has a monopoly on creating money, because of financial stability. There was little reason to think about it, but stablecoins could pose a problem, according to the professor, if they continue to grow and outcompete money from the central bank. Money markets are already being affected, according to Gorton.
Also interesting is that a distinction is made between a ‘retail CBD’ and a second form, generally referred to as ‘wholesale CBDC’. This can refer to small differences that can exist between, for example, money that we in being able to use a supermarket and money that is in money market funds.