Fed Chair Talks About Central Bank Digital Currencies, Bitcoin Price Drops 4.5%

On Friday (September 6), Jerome Powell, the Chairman of the Federal Reserve (the U.S. central bank), spoke in Zurich about central bank digital currencies (CBDCs) and Libra, Facebook's proposed cryptocurrency.

Powell's comments came while he was speaking during the "The Economic Outlook and Monetary Policy" panel discussion hosted by the Swiss Institute of International Studies at the University of Zurich in Zurich, Switzerland.

Central Bank Digital Currencies

When asked by the moderator if central banks were missing out on the opportunities provided by digital currencies, Powell replied:

"I don't think so... Of course, we are following, very carefully, the whole question of digital currencies. It's not something that we're actively considering... For us, it raises significant issues that we want to see carefully resolved.

"For example, if you think about one currency that was for United States or a multi-national currency, it would really need to be cyber-secure because, I mean, it's one thing to be able to counterfeit paper currency; it's another thing to be able to hack into a cyber currency and create with a computer however much of it you want.

"So, the cyber issues are quite daunting. It's also not clear to us that there's demand for this. Consumers have plenty of payment options. They're not clamoring for this. I don't want to sound like I'm ruling it out... but there's another question too. If people are leaving their money in cyber currency and holding it there, they're not putting it in a bank. What happens with banks is that people deposit their money and banks lend the money out. So, what happens to intermediation process if everyone is just investing in this cyber currency?

So, I would say we are in favor of financial innovation. We're following these things carefully, but we don't see digital currencies from a central bank as something in the near term."

Facebook's Libra Coin

On the topic of Libra, this is what the Fed Chair had to say:

"As I have said before about Libra, with Facebook's very large network of more than a couple of billion people, a stablecoin could be systemically important very quickly if it were to have wide adoption, and that's not a forgone conclusion. Because of that, we would think that Libra would need to be held to the highest standards. It could be systemically important, right away, potentially... It is not obvious to see how that would happen under our current regulatory system. So, it's a kind of thing where we've said 'this is not going to be a sprint to implementation'. This is going to be a careful, thoughtful conversation about how we can do our job of protecting the public from cyber risk and other risks that come with something that is systemically important."

The Bitcoin Price

Shortly after Powell's comments came out, the Bitcoin (BTC) price dropped around 4.5% in approximately 90 minutes, as you can see in the 24-hour price chart below (from CryptoCompare):

BTC-USD 24 Hour Chart - 6 September 2019.png

It is hard to be know if this drop in the price of Bitcoin was caused by the Fed Chair's comments or other factors.

Economist and trader Alex Krüger believes that the price drop might just have been a coincidence: