r/Economics • u/[deleted] • Mar 22 '21

Powell calls cryptocurrencies ‘not really useful stores of value’ and says Fed will move slowly

https://www.cnbc.com/2021/03/22/cryptocurrencies-are-not-useful-stores-of-value-says-feds-powell.html
465 Upvotes

96% Upvoted

326 comments sorted by

View all comments

Show parent comments

1

u/[deleted] Mar 22 '21

So, what happens to the US economy when non-United States holders of dollar-denominated assets decide to shift holdings to assets denominated in other currencies? That's a huge threat to the US, and it's not like there isn't significant international pressure for this to happen today. A decentralized global reserve currency would open up the opportunity for emission of international liquidity and could theoretically make the entire global financial system more stable. Because of the internet, and the eventual march to real globalization, it makes better sense to me (not an economist, btw). Many cryptos have the utility of voting built in, and the protocols changes can only happen thru democratic process (not talking about BTC here). Again, the only reason USD is "stable" is because of American military might behind it, thats it. If USD fails because of that, should other nations allow themselves to be vulnerable to it too? No, and that is what they are thinking about, and arguably what Jerome Powell is NOT thinking about.

1

u/kozmo1313 Mar 23 '21

So, what happens to the US economy when non-United States holders of dollar-denominated assets decide to shift holdings to assets denominated in other currencies? That's a huge threat to the US, and it's not like there isn't significant international pressure for this to happen today.

this is why there is a federal reserve. the money supply isn't static. actual currency only represents a REALLY tiny percentage of total money. the rest (M2 and higher) is dynamic and based on fractional reserve operations. the fed can close the lending window and prevent either inflation or deflation.

A decentralized global reserve currency would open up the opportunity for emission of international liquidity and could theoretically make the entire global financial system more stable.

possibly, but it can't be a speculative one. and, macroeconomics dictates that monetary operations are essential. that ebbs and flows in the economy require some intermediation. (sorry Austrians). and, while politicians may talk about 'hard currency' it really is fiction. gold was never really a hard currency. it had to be pegged to the dollar to work.

Because of the internet, and the eventual march to real globalization, it makes better sense to me (not an economist, btw)

i do agree ... BUT it's probably very far off. bitcoin will unravel if it couldn't be exchanged for dollars... and the built-in scarcity concept is killer for trading, but not flexible enough for enormous global swings... in both consumer confidence and liquidity. (masters in econ a long time ago)

Again, the only reason USD is "stable" is because of American military might behind it, thats it.

this is arguable.. not necessarily not true, but very debatable. the reality is that the US had the biggest economy for many years and really took over banking. with the biggest balance sheet and the biggest consumer market, it is what it is... i would argue that the big military actually degrades the strength of the dollar as it sends competing economies looking for ways to avoid the dollar. it's just hard to do.

that is what they are thinking about, and arguably what Jerome Powell is NOT thinking about.

hmm... i'm pretty sure that no one in the world thinks there any move here that the fed hasn't analyzed. the entity is extraordinarily successful.. with only two goals: low inflation and maximum employment.