Officials at the Federal Reserve haven’t necessarily been jumping for joy when the topic of bitcoin is brought up. Instead, most experts at the United States central bank usually dismiss the digital currency as nothing more than a flash in the pan and something for criminals. Not for one Fed bank president.
Delivering a speech during a town hall meeting at the North Dakota State University on Tuesday, Minneapolis Federal Reserve Bank President Narayana Kocherlakota said that he is very interested in bitcoin as a technology. However, he reportedly sneered at the concept of bitcoin becoming a legitimate currency or even replacing the dollar.
Kocherlaktoa alluded to bitcoin’s technology payments system that could make transactions between consumers and merchants faster as well as more affordable – merchants usually pay a certain percentage of each debit or credit card transaction, but the cost of the virtual currency is relatively low.
“That’s where I think the interest of it is, myself, as opposed to a new currency that’s going to drive the U.S. dollar out of circulation,” said the Minneapolis Fed president.
This could be good news for the bitcoin community.
Other Federal Reserve officials comment
Federal Reserve Chair Janet Yellen told Congress in February that the central bank does not have the authority to regulate the cryptocurrency, but recommended that lawmakers should begin to examine a regulatory structure for bitcoin.
“It’s not so easy to regulate Bitcoin because there’s no central issuer or network operator,” said the Fed Chair. “This is a decentralized, global [entity]. We’re looking at this.”
This month, we reported that David Andolfatto, St. Louis Federal Reserve Vice President and Director of Research, noted in a published paper and a media interview that bitcoin poses a threat to the Fed and financial establishment, which he said was actually a good thing. His argument was that it would force a central bank to improve monetary policy and the currency.
Earlier this year, Philadelphia Fed President Charles Plosser scoffed at the notion that the bitcoin poses a threat to the greenback. Speaking at the 13th annual Economic Outlook at La Salle University (PDF), he presented the case that bitcoin is only a payment system and it will be pretty much impossible for it to replace the dollar.
A former candidate to head the Fed, Larry Summers, told one news outlet that bitcoin has the potential to be a very important technological development because it would act as an alternative for consumers to the exorbitant fees to use and access their own money.
“I am very mindful that there have been other things that came out of Silicon Valley that seemed very flakey to people on the outside and then proved to be an enormous deal,” said Summers.
“Very serious economists thought that the Internet was going to be no more important than the fax machine so I’m not willing to dismiss Bitcoin. At the same time, I do think it’s important to recognize that it can’t and won’t flourish as a way of avoiding legal protections.”
This is just a tip of the iceberg.
Over the past year, dozens and dozens of governments and central banks have issued warnings on bitcoin cautioning its citizens that bitcoin is a risky investment and public bodies would not be held responsible if any theft or loss of holdings transpires.