WASHINGTON (Reuters) - Federal Reserve Governor Randal Quarles, the U.S. central bank’s regulation chief, said on Thursday that digital currencies like bitcoin could pose “more serious financial stability issues” if adopted widely.
In a speech, Quarles also said central banks should be cautious in issuing their own digital currencies, and that the matter requires extensive review. He said he was “particularly concerned” potential central bank digital currencies could face issues related to money laundering, terrorism financing, and cyber attacks.
Quarles said he worried that bitcoin and other comparable digital currencies could come under significant stress at times of adversity, particularly since they cannot rely on the backing of a centralized asset. They could pose a risk to the stability of the broader financial system if they became widely held.
“It is not clear how a private digital currency at the center of a large-scale payment system would behave, or whether the payment system would be able to function, in times of stress,” he said at a Washington conference, according to prepared remarks.
“While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.”
While supportive of continued research into digital currency issues, he argued near-term efforts should focus on improving the way payments are processed in the existing banking system.
Quarles was speaking one day after William Dudley, president of the Federal Reserve Bank of New York, said the Fed was in the early stages of considering the implications of issuing a digital currency in the future.
Bitcoin slid to as low as $9,000 in volatile trade on Thursday, having lost more than a fifth of its value since hitting an all-time high of $11,395 on Wednesday. BTC=BTSP
Reporting by Pete Schroeder; Editing by Frances Kerry