Federal Reserve Official Asserts Cryptocurrency Bolsters Dollar’s Position

US Federal Reserve Governor Christopher J. Waller delivered remarks on the topic of de-dollarization, cryptocurrencies, and the potential advent of a digital dollar during the “Climate in Central Banking” conference held at the University of the Bahamas.

The significance of the US dollar as the predominant global currency, serving as both a store of value and a standard for assessing goods, is widely acknowledged. However, concerns have been raised over its enduring position due to various factors including the emergence of the BRICS nations, developments in China, sanctions imposed on Russia, accommodative monetary policies, and the advent of cryptocurrencies.

Waller addressed the notion that cryptocurrencies, particularly Bitcoin, might supplant the dollar as the world’s reserve currency. Despite this speculation, Waller remains unperturbed, pointing out that the majority of decentralized currency trading occurs within pairs that include stablecoins, the vast majority of which are pegged to the dollar. Hence, cryptocurrencies are effectively transacted in dollar terms.

In fact, the prevalence of stablecoins, such as USDT and USDC, reinforces the dollar’s global standing, serving as modern iterations of traditional greenbacks without requiring intervention from the Federal Reserve. Much like how Amazon revolutionized commerce, digital dollars streamline currency transactions.

Presently, in 2024, the dollar’s dominance remains steadfast, with approximately 60% of global reserves held in dollars or US government bonds, solidifying its status as the preferred choice in the face of inflationary pressures. Despite calls for de-dollarization and the proliferation of alternative currencies, the dollar continues to reign supreme in international transactions, accounting for 60% of all international bank loans and deposits.

Waller expressed confidence that the dollar’s status as the world’s reserve currency is unlikely to wane in the foreseeable future, noting that recent developments have only bolstered its standing rather than diminishing it.

During the subsequent question and answer session, Waller addressed inquiries regarding the Federal Reserve’s potential development of a central bank digital currency (CBDC). He questioned the necessity of a CBDC, highlighting the absence of a compelling market failure in the current payment system that could only be addressed by such a digital currency. With private issuers already offering trusted digital dollar equivalents in the form of stablecoins, Waller sees limited justification for a CBDC.

Regarding cryptocurrencies, Waller likened them to baseball trading cards, asserting their lack of intrinsic value. While he expressed indifference towards individuals trading cryptocurrencies through ETFs, he voiced concerns about financial institutions holding significant crypto assets in their portfolios, citing risks related to security and stability.