‘Blockchain is totally overrated,’ says the Fed Governor and remarks crypto as “Just electronic Gold”

Key Takeaways:

  • Christopher Waller, a member of the Federal Reserve Board of Governors, remarked on Friday that “blockchain is totally overrated,” comparing some research papers on central bank digital currency (CBDC) to infomercials.
  • The Fed governor also stated that he has seen CBDC study papers that look more like “infomercials,” in the sense that they go through all of the “bells and whistles” a product has to offer, distracting consumers from deciding whether or not they need it.
  • Gary Gorton, a Yale finance professor who spoke at the event, argued for a more aggressive response to digital currencies.

“Blockchain is totally overvalued,” said Christopher Waller, a member of the Federal Reserve Board of Governors, connecting some research papers about major digital currencies at banks (CBDC) to infomercials.

On Friday, a virtual panel consisting of Gary Gorton of Yale, Hyun Song Shin of the Bank for International Settlements (BIS), and Christopher Waller of the Federal Reserve examined blockchain technology and CBDCs in depth. “Should the Central Bank Issue Digital Currencies?” was the title of the hour-long panel debate, and Waller is a sceptic of such technology. In January, the Federal Reserve released a study that looked at the same issue, and President Joe Biden signed an executive order last month directing federal agencies to look into digital property as well.

Waller remarked that the Fed has always played a mostly incidental role in the private market, and that when considering a shift, Waller should first assess “what market failure is there that would necessitate us to break away from a century of precedent and embrace a retail CBDC?”

 During the virtual panel, Waller noted, “These things aren’t payment instruments at all.” “These things,” in his opinion, are basically electronic treasure.  They’re kinds of wealth storage that last for a long period. “look at art and baseball cards”. 

He further explains how  all of this is  essentially useless stuff that people pay a lot of money for and then keep because they think they can sell it and recoup their investment.

It’s also important to mention that the Fed governor stated that he’s read CBDC study papers that sounded like “infomercials.” They cover all of the “bells and whistles” that a CBDC product can provide, preventing clients from questioning whether they actually need it.

Waller went on to say that he does not believe blockchain technology is efficient and that there is just too much hype surrounding it. The governor of the Federal Reserve explained:

  “I think blockchain is totally overrated — The question is is it the most efficient way to do stuff? We know distributed ledger blockchain is one way of doing transactions and record-keeping, but it’s not efficient.”

Gary Gorton’s point of view:

Gary Gorton, a Yale finance professor and event participant, argued for a more proactive approach to digital currencies.

Gorton also said that, historically, “every single nation on earth” has given its sovereign power a monopoly on money creation for the purpose of economic stability.

According to Gorton, once the supply chain uses blockchain technology on a large scale, payment mechanisms must be considered.

He admitted, “Right now, that’s a bit of a stumbling block.” He believes it might be CBDC, which  is the greatest option because otherwise stable stablecoins would take over and flourish, and “we’ll have a tremendous problem.”

While there might not be a CBDC for another 5 or 10 years, Gorton believes the Fed should be actively examining the issue, which it isn’t.

“I’m totally baffled by that statement,” Waller responded, adding that “the Fed is now investing a significant amount of resources in research and analysis in this subject.”

Stablecoins, according to Gorton, are more popular and have a wider range of applications, and he believes we are in the midst of a crisis.

 “I believe the Fed is in trouble”.

 He explains how, “We’re not talking about a theoretical concern here, and stablecoins have already had an impact on the money market.”

During a virtual conference with representatives of the Cleveland Fed in mid-November last year, Waller explored applying laws to the stablecoin sector and discussed fiat-pegged digital currencies. Waller told participants at an Official Monetary and Financial Institutions Forum (OMFIF) event in October that he was doubtful about the Fed launching a CBDC or digital currency prior to the Cleveland Fed virtual conference announcements.

Waller reaffirmed his doubts about the Fed’s need to release a CBDC during a virtual conversation on central banking and digital currencies on Friday. He is yet to be convinced that a central bank digital currency is required in the United States.

In addition to the United States, Waller discussed China’s CBDC, emphasising that the digital yuan does not pose a danger to the dollar. “What has the [China’s central bank] done?” Waller wondered on Friday. “They’ve permitted Chinese homeowners to open a PBOC bank account in order to pay their electric bills… I don’t see how having payment accounts at a central bank poses any kind of danger to the dollar.”

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Shambhavi Soni