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Fed Chairman: ‘No One Uses It’ — Bitcoin a Speculative Asset Like Gold

Fed Chairman Powell has said that a globally prevalent cryptocurrency could conceivably remove the need for reserve currencies.

The Chairman of the United States Federal Reserve has said that a globally adopted cryptocurrency system could conceivably remove the need for reserve currencies. 

Testifying before the Senate Banking Committee on July 11, Fed Chairman Jerome Powell gave his analysis of whether a cryptocurrency system with global prevalence could diminish — or even go so far as to remove the need for — so-called anchor currencies. 

With the U.S. dollar de facto the world’s dominant reserve currency, Powell acknowledged the possibility of a preeminent cryptocurrency redrawing the current financial landscape — yet noted that as of yet, this has stopped short of becoming a reality. The Fed chairman said: 

“I think things like that [the obsolescence of today’s reserve currencies] are possible but we really […] haven’t seen widespread adoption. Bitcoin is a good example, almost no one uses it for payments […] it’s a speculative store of value like gold.”

Powell’s comparison is noteworthy given the Federal Reserve Bank of New York’s role as a custodian for the gold held by entities such as the U.S. and foreign governments, other central banks, and official international organizations. 

Powell acknowledged that the prospect of cryptocurrencies coming to replace reserve currencies has been implied since their inception and that its realization could see the global financial system — and specifically the Federal Reserve System — profoundly transformed. He noted: 

“People have been talking about this since cryptocurrencies emerged, but we haven’t seen it. That’s not to say we won’t — and if we do, then yes, you could see a return to an era in the United States where we had many different currencies, in the so-called national banking era.”

As reported, Powell had testified before the House Financial Services Committee earlier this week and acknowledged that the impact of Facebook’s forthcoming stablecoin Libra could be of a “potentially systemic scale” for the global financial and regulatory landscape.

In China, central banking veterans have characterized the widespread anticipation of Libra as being “inseparable from the global dollarization trend,” and stressed that Beijing should respond with precautions and rigorous policy research to seek to maintain a strong monetary status.

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China’s Central Bank Developing Own Digital Currency in Response to Libra

The People’s Bank of China, the country’s central bank, is reportedly developing its own digital currency in response to Facebook’s Libra.

China’s central bank is reportedly developing its own digital currency in response to Facebook’s Libra as the latter could purportedly pose a risk to the country’s financial system, the South China Morning Post reported on July 8.

Wang Xin, director of the People’s Bank of China (PBoC) research bureau, argued that “if [Libra] is widely used for payments, cross-border payments in particular, would it be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system?” 

Wang said that the bank decided to create its own digital currency specifically because of the unclear role of the United States dollar once Libra is issued:

“If the digital currency is closely associated with the U.S. dollar, it could create a scenario under which sovereign currencies would coexist with U.S. dollar-centric digital currencies. But there would be in essence one boss, that is the U.S. dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”

As such, PBoC purportedly received approval from the chief Chinese administrative authority, the State Council, to begin work with other market participants and institutions on a central bank digital currency.

Academics have also reportedly launched a committed initiative on digital finance which includes resources from Peking University, Renmin University, Zhejiang University and Shanghai Jiao Tong University.

Notably, PBoC’s plans to develop its a national digital currency come at a time when China has taken a hard line toward cryptocurrency trading, with financial institutions banning bitcoin (BTC) trading, initial coin offerings and crypto exchanges.

As reported earlier today, PBoC’s blockchain trade finance solution processed over 30 billion yen ($4.36 billion) in foreign exchange transactions since its inception.

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Singapore Central Bank: Concerns Over Facebook’s Libra ‘Not Trivial’

Singapore’s central bank has said libra could help make payments cheaper, but warned Facebook needs to provide more information about how it will work.

Singapore’s central bank has held discussions with Facebook about its upcoming libra cryptocurrency, Bloomberg reported on June 27.

Ravi Menon, the managing director of the Monetary Authority of Singapore, reportedly acknowledged libra’s potential benefits — such as making payments cheaper or supporting the unbanked — but said the regulator needs to understand exactly how the tech giant’s system will work.

As well as warning that it isn’t clear whether libra would offer a superior alternative to other electronic payment mechanisms, Menon said Singapore would be seeking assurances on security and privacy issues before making a regulatory decision. At a news conference, he added:

“The key challenge is to figure out the nature of the beast. What is it more like and which box we can put it into. At this point we are not sure yet.”

Menon also warned that the concerns raised by central banks worldwide are “not trivial.”

Facebook has been receiving some considerable pushback from regulators since unveiling the white paper for its long-awaited cryptocurrency.

Earlier this week, Bank of France Governor Villeroy de Galhau warned libra will have to comply with banking regulations in the country, and may need a license to operate.

It has also been confirmed that the United States House Financial Services Committee will hold a hearing about libra on July 17.

Meanwhile, the head of the German Federal Financial Supervisory Authority has urged governments and central banks around the world to work together in forming an international regulatory framework.

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Deutsche Bank: ‘Aggressive’ Central Banks Making Bitcoin More Attractive

Deutsche Bank lead strategist predicted that interest rate cut by the Fed will make cryptos more attractive as opposed to fiat.

The potential interest rate cut by the United States central bank is apparently one of the reasons for the recent surge of bitcoin (BTC), Deutsche Bank exec Jim Reid said in an interview with CNBC on June 26.

Reid, the head of global fundamental credit strategy at Deutsche Bank, stated:

“if central banks are gonna be this aggressive, then alternative currencies do start to become a bit more attractive.”

Reid referenced a recent speech by Fed’s chairman Jerome Powell, who said yesterday that the central bank is considering a cut of interest rates amidst the current economic uncertainty and inflation risks. As such, the U.S. dollar (USD) dropped versus major fiat currencies yesterday, recording a three-month low against euro (EUR), which was allegedly triggered by expectations of multiple interest rates decreases by the Fed.

Meanwhile, bitcoin has continued to hit new 2019 records of above $12,000, while its market cap surged above $220 billion with a dominance rate reached more than 60% for the first time since April 2017, as reported earlier today.

Reid also noted that the recent spike of crypto prices is partly caused by Facebook’s upcoming crypto project Libra, which white paper was released earlier on June 18. Since then, bitcoin has risen more than 30% from around $9,000 to $12,616 at press time, according to data from Coin360.

In the interview, Reid has reiterated his negative stance towards easing practices by central banks after previously claiming that the existing fiat-based currency system was unstable and nearing its end. Providing his remarks back in November 2017, in the wake of the bitcoin’s all-time high record of $20,000 in December 2017, Reid criticized continuous printing of money by banks, warning that this could lead to the end of paper money.

But the United States isn’t alone. In recent weeks, the European Central Bank President Mario Draghi also hinted at new interest rate cuts.

“Add in the May 2020 Bitcoin halving and you have the perfect storm,” tweeted Morgan Creek founder, Anthony Pompliano,” earlier this month. 

“Cut rates.

Print money.

Make BTC more scarce.”

Ironically, Deutsche Bank itself could be partially blamed for a weakening economy. The bank’s stock has been dropping to record lows over the past year.