A member of the Federal Reserve's board of governors called bitcoin and other cryptocurrencies out for their "extreme volatility" on Tuesday, but made it clear that the new asset class does not pose a threat to the stability of the U.S. economy.
Lael Brainard, who also sits on the central bank's powerful interest rate-setting committee, told an audience in New York City:
She said that cryptocurrency markets "may raise important investor and consumer protection issues, and some appear especially vulnerable to money-laundering ... concerns." Brainard further cautioned individual investors to be aware of the "possible pitfalls of these investments and the potential for losses."
On the other hand, Brainard argued that cryptocurrencies were unlikely to "pose a threat to financial stability," given that the assets are not commonly used in payments and there is little evidence that investors have borrowed large amounts of money to invest in them.
CoinDesk's State of the Blockchain 2018 report found that only 19 percent of survey respondents had borrowed funds to buy cryptocurrencies and, of those who did, more than half had already repaid that debt.
The central banker also indicated that the Fed would pay closer attention to cryptocurrencies in the future, saying:
Elsewhere, Brainard devoted the bulk of her remarks to traditional asset classes such as stocks and bonds, where she said prices may be "particularly susceptible to an unexpected development" such as accelerating inflation. Still, she characterized overall risks to financial stability as "moderate," due to financial reforms introduced after the 2008 crisis.
Lael Brainard image via Shutterstock
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