Randal K. Quarles, a Trump administration appointee to the Federal Reserve Board of Governors and Vice Chair for bank supervision, has given a lengthy speech (“Thoughts on Prudent Innovation in the Payment System”) that directly targets Bitcoin as a danger to the monetary and financial system.
To reiterate, an official speaking for the nation’s central bank that manages the global reserve currency – the institution that has long bragged about its power to bail out the entire world with the magic powers of the alchemist – has put down Bitcoin for being untrustworthy, unbacked, and unsound.
Discrediting Crypto
The timing here seems about right. Nine years ago, Bitcoin was born, but only a small group of developers were really paying attention. Today, there are lines forming at Bitcoin ATMs around the country as people scramble to convert cash to digital money even at absurdly high premiums.
With one unit of Bitcoin now worth 10,000 times the US dollar, it makes sense that the Fed would begin to feel a bit defensive. Indeed, the speech comes to the defense of the central bank, the existing money, and payment system networks, and calls for the pace of innovation to be controlled by regulators in the interest of “prudence.”
His summary criticism of Bitcoin is that:
The “currency” or asset at the center of some of these systems is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all. Indeed, how to treat and define this new asset is complicated.
That a Fed official would denounce cryptocurrency as unbacked strikes me as the height of irony. The dollar was once “backed” by the secure asset of gold, but that system was finally abolished by Richard Nixon’s Fed in 1971, lighting up inflationary fires that lasted a full decade. Since then, the banking system has moved from crisis to crisis, from the S&L debacle of the late 1980s to the near-death experience of the entire financial system of 2008.
