Federal Reserve Governor Christopher Waller observed there hasn’t been a significant change in the dollar’s dominance over the last couple of decades. While he noted potential future challenges, issues like digital currencies will enhance the dollar’s position. That’s because stablecoins are predominantly in dollars.
Other observations he made included an analogy comparing cryptocurrency with baseball cards. Plus, he can’t see any need for a retail central bank digital currency (CBDC) but is more neutral about wholesale CBDC.
Governor Waller was giving a speech about the dollar’s international role during a Global Interdependence Center (GIC) event in Nassau, Bahamas.
He dismissed some recent Chinese moves to invoice in local currencies with Brazil and Saudi Arabia. “Outside analysts generally view these agreements as symbolic and at most laying the groundwork for potential future use of the Chinese renminbi in very isolated instances,” he said.
After this speech, he responded to questions on cryptocurrency and central bank digital currencies (CBDCs).
Cryptocurrencies are like baseball cards
Governor Waller compared cryptocurrencies to baseball cards. He believes neither have intrinsic value and both are bought and held simply because others will do so as well.
“I don’t really care if people want to have an ETF trading baseball cards,” he said. “I don’t care if they want to have an ETF trading crypto. What I don’t necessarily want is banks or some pension portfolio holding a lot of this as the main asset of their portfolio for the typical safety and soundness reasons.”
In response to another question, he observed the lack of alternatives to U.S. Treasuries as an investible asset.
“If you care at all about any international reserves, where are you going to go? The U.S. Treasury is about the best asset in the world to hold any kind of reserves in. There aren’t really any other kind of reserves,” said Governor Waller.
“If you want to use Bitcoin to hold your nation’s reserves, go right ahead. But I don’t think most nations would think that would be a wise policy choice.”
What’s the point of a retail CBDC? Wholesale perhaps
Asked about the potential for a U.S. digital dollar, Governor Waller said for the last 2.5 years, he’s been asking, “What is the major market failure in the payment system that requires a CBDC, and only a CBDC to solve it.” He said that he has yet to receive a satisfactory answer.
Compared to his views on crypto and retail CBDC, his comments about a potential wholesale CBDC were almost warm and fuzzy.
“There’s an argument for taking (the) reserves we already have and tokenizing those to run over different technological platforms. But there you’re not really creating any new liabilities on the Fed. It’s tokenizing how it trades across different platforms.”
The New York Innovation Center at the New York Federal Reserve has been involved in multiple wholesale CBDC experiments. They include Project Cedar for FX, cross border experiments with Singapore and a trial with the Regulated Liability Network. India also said it was working with the Federal Reserve on cross border CBDC.
