The US Federal Reserve has again warned of the risks associated with digital currencies, this time focusing on security “trade-offs” for central banks.
In a speech at Yale Law School, Governor Jerome H. Powell said that banks may find themselves in a catch-22 situation regarding the use of digital currencies and even the industry-coined “distributed ledger” technology.
“Advanced cryptography could reduce vulnerability to cyber attacks but make it easier to hide illegal activity. To the extent we relax strong cryptography to make it easier for authorities to monitor illegal activity, we could simultaneously weaken security,” he stated.
Powell continued stating that such issues should not be cause for dismissal of emerging innovation.
“We should be open to the new ideas and innovations that will drive economic growth and improvements in our financial system,” he said. “At the same time, the public rightfully expects that authorities will do whatever it takes to keep their money safe.”
Fed rates hike will benefit Bitcoin
It is not the first time the Fed has issued opinions on Bitcoin and its ilk. A speech by Governor Lael Brainard in October last year said that “close attention” would be paid to Blockchain in particular, with distributed ledgers described as something that “could ameliorate or exacerbate traditional financial risks.”
The upcoming interest rate hike meanwhile could ironically serve to benefit Bitcoin as the dollar strengthens and causes repercussions for emerging markets sensitive to its exchange rate.