A central bank digital currency would be “one of the worst financial ideas of recent times”, a US think-tank researcher told a US Congress subcommittee.
Central bank digital currencies would only increase the size, role and power of the Federal Reserve, said Alex Pollock, senior fellow at the R Street Institute, on July 18. The R Street Institute is a conservative think-tank noted for advocating pro-free market policies.
The Federal Reserve would become the “overwhelming credit allocator of the US economic and financial system”, he told the sub-committee for monetary policy and trade. “To have a central bank digital currency is a terrible idea … one of the worst financial ideas of recent times,” Pollock said.
Pollock and other researchers gave their views on whether the US government should consider “crypto currencies” as money.
“From its viability as an alternative, to traditional currencies, to its potential adoption by central banks, to its possible impact on monetary policy, it is important Congress carefully study every aspect of this new technology,” said subcommittee chairman Andy Barr.
Pollock agreed the digitalisation of financial services and core financial infrastructure would continue to become “more intense and omnipresent”. But the rise in technology would not change the “fundamental nature of money”, he argued.
“It is clear that having a fiat currency is far too precious and profitable for governments for them ever to go back to a government currency backed and convertible into actual assets, whether gold coins or otherwise,” he said.
“An increase of the monopoly power of central banks, which already have too much, should be avoided.”
Other experts called before the committee were less pessimistic about the idea. Rodney Garratt, professor of economics at the University of California Santa Barbara, said a central bank digital currency was attractive given the decline in cash usage for transactions.
“I believe the Federal Reserve will, at some point in the future, need to respond to the disappearance of cash and I have given some reasons why it might consider offering some form of retail-oriented central bank cryptocurrency,” he said.
But Garratt acknowledged there were many issues related to the viability and security of this technology that need to be “fully resolved” before it should be adopted.
“It is certainly difficult to imagine a cryptocurrency replacing the US dollar as long as the Federal Reserve acts as a moderately good steward of the national currency,” said Norbert Michel, director at the Centre for Data Analysis at the Heritage Foundation, another pro-free market think-tank.
He went on to urge Congress to “eliminate barriers”, which impeded people from using their preferred method of payment and medium of exchange.