Fed Vice Chair: Cryptocurrencies Threaten Financial Stability

Digital currencies may pose a threat to financial stability as they gain popularity, said U.S. Federal Reserve vice chairman for supervision Randal Quarles.

Speaking at the 2017 Financial Stability and Fintech Conference on Thursday, Quarles warned against the rise of cryptocurrencies, saying private decentralized currencies could have “spillover effects” on the broader financial system if they grow too big.

Their volatility, and the fact that they are not backed by any institution or physical assets, make them difficult to get a handle on, which means it is unclear what would happen in an emergency situation, he said.

During his speech, he said:

“Risk management can act as a mitigant, but if the central asset in a payment system cannot be predictably redeemed for the U.S. dollar at a stable exchange rate in times of adversity, the resulting price risk and potential liquidity and credit risk pose a large challenge for the system.”

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