United States

Potential financial stability issues from cryptocurrency usage


In remarks made at the 2017 Financial Stability and Fintech Conference held Nov. 30, 2017, Vice Chairman for Supervision Randal Quarles discussed the safety and soundness concerns over the potential for widespread cryptocurrency usage. Highlighting the importance of consumer trust in the effectiveness of payment systems, Quarles stressed the necessity for balance between the benefits of innovation and the safe and reliable operation of payment systems and activities.

In Quarles’ speech, he indicated his concern that widespread usage of digital currency would not only raise liquidity and credit risk concerns for a currency that “is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all,” but also still pose significant risk through the use of funds for money laundering and terrorist financing even if eventually central bank issued and used widely around the globe. Central bank-issued digital currency could also radically change how payment activity occurs, with the possibility of significant decrease in deposit activity, and potential disruption of a financial institution’s ability to make loans that further economic activity, according to Quarles. Quarles indicated that caution should be used by banks considering issuance of their own digital currency without extensive review of the potential risks.

Quarles went on to discuss the Federal Reserve’s current study of potential improvements to its settlement services, suggesting that these improvements could address future consumer need for real-time retail payments by building on the existing banking system rather than implementing an entirely new one. See full text of Quarles’ speech.