New York’s CoinDesk Consensus Conference began on Monday, May 14th. One of the panelists – St. Louis Fed President James Bullard – offered an interesting take on cryptocurrencies and what they could potentially do to American society.
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Bullard feels cryptocurrencies are taking the United States back to the 1830s, citing the fact that they trade for different rates in different regions, which is how most major currencies traded for during that decade.
Roughly 90 percent of the country’s money supply during that time was issued privately through banknotes, and each city contained its own personal discount book to keep track of how much each individual currency was being discounted.
Bullard believes the same thing is happening today, citing crypto and the range of prices they exhibit depending on the exchanges and trading platforms they’re listed on.
“The only reason this is not a bigger issue today is that the total volume of cryptocurrency trade is not that large in relation to the entire economy,” he commented. “But the exchange rate problem is a big deal because you don’t know how cryptocurrencies are going to trade against each other. That happens even with big-time currencies like the yen and the dollar.”
He comments that the problem is already expanding in countries like Venezuela and Zimbabwe. These two countries are part of a small handful to release national digital currencies (i.e. the petro), and while most nations have managed to avoid the issue of exchange rates running rampant, these two nations have ultimately fallen victim, as regulators were unable to control the issuance of their currencies, resulting in hyperinflation.
“You’ve got this kind of special problem of who’s going to issue the currency and what are those promises about future issuance, and you can really maintain the credibility of those promises,” he mentioned. “If you can’t, the value of your currency is going to zero the same way the Venezuelan bolivar has.”
Bullard later stated that the Fed is not looking to create its own digital currency and that the United States dollar is not threatened by crypto. Regardless, the Fed is keeping its eye on the space.
“The drift to a nonuniform currency could become a serious issue for the U.S. if cryptocurrencies take up a large volume of trade,” he exclaimed. “You could imagine going into a store, and now you have 10 different ways or 100 different ways that you can pay. That is exactly what people have not liked historically. They want a uniform thing. A dollar is a dollar.”
An interesting dynamic to watch out for going forward, to say the least.
Do you agree or disagree with Bullard’s thoughts? Post your comments below.
Images via Reuters, The Saturday Evening Post