John Carroll Williams, the current President of the San Francisco branch of the Federal Reserve Bank, the central bank of the United States, and the man who will take over as the next President of the Federal Reserve Bank of New York, said in a speech on Friday, April 20, 2018, that cryptocurrencies are not real currencies.
Cryptocurrency doesn't pass the basic test of what a currency should be.
He went on to say that a currency should be “a store of value” and that it needed to be “elastic” in order to be able to adjust to changes in the economic and financial climate.
He noted that the prices of cryptocurrencies are volatile, which makes it hard to use them as a form of payment, and as such they fail the first test. Williams added that while central banks are able to easily adjust the amount of paper currency in circulation, cryptocurrencies such as Bitcoin have a fixed supply – 21 million in BTC’s case – which means they fail the elasticity test.
It is worth noting that not all cryptocurrencies are exactly like Bitcoin. For example, the new price-stable cryptocurrency from Intangible Labs, Basis, which we reported on a few days ago, uses the idea of an “algorithmic central bank” that adjusts the amount of Basis coins in circulation based on changes in demand.
The next New York Federal Reserve president, who after getting his PhD in Economics, from Stanford University in 1994, started his career at the Federal Reserve Board as an economist, acknowledges that he is “very biased” on this issue. He went on to say that “the idea of the supply of currency and thinking about currency really belongs more in the sphere of government and central banks.”
Williams’ opinion of Bitcoin mirrors that of William Dudley, the incumbent President of the Federal Reserve Bank of New York. According to Bloomberg, at an event in New Jersey in November 2017, Dudley stated:
“In terms of bitcoin, I would be pretty cautionary about it. I think that it’s not a stable store of value… I would be, at this point, pretty skeptical of bitcoin. I think it’s really more of a speculative activity… Bitcoin is tiny relative to the amount of payment transactions that are executed in the United States… I think at this point it’s really very premature to be talking about the Federal Reserve offering digital currencies, but it is something we are starting to think about.”
This cautionary attitude towards Bitcoin from the Federal Reserve isn’t new. Back in December 2013, in an interview with Bloomberg Television, former Federal Reserve Chairman Alan Greenspan, called Bitcoin a “bubble”:
You really have to stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven't been able to do it… But if you ask me, 'Is this a bubble in Bitcoin?' 'Yeah, it's a bubble'
Not everyone in the world agrees with the view that cryptocurrencies are not real currencies. One such person is Jack Dorsey, the current CEO of microblogging platform Twitter and payments app Square, who famously said in an interview in March 2018 with the UK’s Sunday Times newspaper that he expected Bitcoin to become the single global currency within the next decade.