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Fed’s Yellen Thinks Bitcoin is Overstretched; Indicates no ‘FedCoin’ Anytime Soon

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Fed’s Yellen Thinks Bitcoin is Overstretched; Indicates no ‘FedCoin’ Anytime Soon

The US central bank, the Federal Reserve, raised the base interest rates from 1.25 to 1.5 percent on December 13, while the chairwoman, Janet Yellen, gave her last conference, referring to bitcoin as a “highly speculative asset.”

The financial media has been abuzz with stories about bitcoin’s dramatic climb into the $1000’s and then beyond $15,000 more recently. Also hitting the wires are worries about a bubble not just in cryptocurrency, but in US equities too. While Yellen said bitcoin was a “highly speculative asset” and “was not a stable store of value,” her comments on the stock markets were mild in comparison; “There’s nothing flashing red there, or possibly even orange.”

A crash in the price of bitcoin was not of too much concern for the Fed chairwoman, “Undoubtedly there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don’t see that as creating a full blow financial stability risk. I really don’t see any significant exposure of our core financial institutions to threats from bitcoin if its value were to fluctuate.”

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On the topic of central bank digital currencies, Yellen signaled that such a path is not likely to be pursued by the Federal Reserve any time soon but did not rule out that other central banks may be the first to innovate:

“There is a discussion going on among central bankers about the potential merits of a central bank itself adopting a digital currency, and there may even be a central banker or two around the globe that might go in that direction.”

In February 2015, David Andolfatto, an economist for the Federal Reserve Bank of St Louis, called for the creation of ‘FedCoin,’ a cryptocurrency take on the US Dollar.

The Fed’s policymakers left the outlook for interest rates in 2018 unchanged, with three more hikes in the baseline interest rate anticipated. The stance was less hawkish than expected, with the dollar expected to underperform over the next year as trade rebalancing takes place. With no change in the longer-term prospects for US growth and, consequently monetary policy, this bodes well for the price of bitcoin over the long run.

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