On April 3, 2017, at the University of Pennsylvania School of Engineering and Applied Science, President and Chief Executive Officer of the Federal Reserve Bank of Philadelphia, Patrick T. Harker, presented a speech titled “Fintech: Revolution or Evolution?,” touching on two current hot topics in the fintech industry–digital currencies and distributed ledger technology.
Harker believes that digital currencies have no guarantees of value, are untrustworthy, and face technical challenges. He explained that the most important attribute of currency is trust and that, despite inflation, people trust fiat money issued in a stable economy, like the United States dollar.
“A dollar is a dollar. We all agree that it is and there’s not much that can undermine that faith. We experience inflation, sure, but not often in dramatic or abrupt ways.”
Harker then elaborated that the volatility of digital currencies is another reason why the Fed is hesitant to widely use it. Citing to a 2014 report, he argues that “privately issued currencies can lead to unstable money supply and depreciation of the currency” because digital currencies do not have a guaranteed value. He further explained that, even though some governments are considering issuing digital currencies, there are still a number of hurdles and challenges (such as cyberattacks and other crimes) that need to be addressed before digital currencies can be widely used. Harker’s statements suggest that digital currencies will not replace fiat money, at least not any time soon.
Despite having negative opinions on digital currencies, Harker sees “tremendous potential” in the use of distributed ledger technology for risk management in the US banking sector, mainly because of its ability to authenticate transactions:
“Blockchain has tremendous potential and banks can use it to further manage risk. From my perspective, however, its real value is in authentication, not on distributing a virtual currency. And the implications of having a distributed ledger that offers virtually failsafe data storage are huge on the risk management side for any business.”
Harker’s views are consistent with Federal Reserve Governor Jerome H. Powell’s most recent remarks. On March 3, 2017, Powell criticized the issuance of digital currencies by a central bank and praised the use of distributed ledger technology.