Despite being widely adopted by online stores, business projects, governments, investors, bankers, and a wide community that grows by the day; the use of cryptocurrencies still raises a hot debate between those that defends them and those that criticize these assets because of their volatility, among other aspects.
James Bullard, who is currently the President of the Federal Reserve Bank of St. Louis and one of the most prominent economists in the planet, seems to take the side that criticizes cryptocurrencies, at least judging by his latest comments on the matter. He says that they can represent a disruptive force to the economy.
Cryptocurrencies and their Criminal Potential
Among Bullard’s concerns (some of them shared with his boss, Fed Chairman Jerome Powell) are that crypto assets can be threatening to the financial system for their potential to pave the way for criminal activity, as well as their lack of stability, evidenced in the price swings that have occurred in recent months.
According to Bullard, “cryptocurrencies may unwittingly be pushing in the wrong direction in trying to solve an important social problem, which is how best to facilitate market-based exchange.”
The economist states that he sees crypto assets as new entities that are entering the current, ongoing global currency competition. He observes that cryptocurrencies are not the first competition that fiat currencies have had in the past. He cited cigarettes as an example, saying that they “became a currency among POWs during World War II.”
A Pessimistic Outlook towards the Future
Bullard is not very optimistic about the future of cryptocurrencies despite their recent appearance, rise, and overall success as means to store value and the fact that he believes that “public and private currencies can compete and coexist.”
“Cryptocurrencies are creating drift toward a non-uniform currency in the U.S., a state of affairs that has existed historically but was disliked and eventually replaced.” Bullard has implied that he does not expect regular users and business will support crypto assets, despite the confidence around the industry that they will, inevitably, be adopted by the masses.
Bitcoin, the most prominent of all cryptocurrencies, is certainly a volatile asset, and there is no denying that its value is prone to skyrocket (which is what happened around the date that Facebook announced its Libra project) or to collapse (remember the mid-November hard fork of Bitcoin Cash?) at any minute depending on external circumstances.
It Will Always Be Volatile
Bullard, regarding that subject, believes that BTC will always be volatile and prone to change its value in a hurry. As a result, he thinks that payments are not a suitable use case. “Currencies have to be reliable and hold their value. This is probably why government backing has been important historically, combined with a stable monetary policy that promotes stability of the currency.”
Cryptocurrencies have found themselves in the mouths of congressmen, politicians, economists, and other prominent decision-makers since the announcement of Libra. Several countries in the world, most notably the United States, are still struggling to find a way to regulate these assets.
By Andres Chavez