Bitcoin Slides as Fed Studies Issuing a Cryptocurrency

The Federal Reserve released a study late Thursday raising the possibility of issuing a cryptocurrency and asking for public comments on the idea, but making clear that it wouldn’t act without support from Congress and the White House.

Prices for bitcoin fell sharply late Thursday, losing nearly $2,000 to $39,864.75 in recent activity.

The study, which had been delayed several times said that a central bank digital currency, or CBDC, “could potentially offer a range of benefits.” Among those identified in the report were providing households and businesses a convenient, electronic form of central bank money; creating a platform for new financial products and services; and faster and cheaper payments (including cross-border payments). 

The report also identified a number of risks in a CBDC, including its impact on the financial market structure; the cost of credit; the stability of the financial system; and the efficacy of the Fed’s monetary policy. 

“The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law,” the study said. 

Cryptocurrencies such as bitcoin and dogecoin have seen their popularity soar in recent years, with some arguing they can replace other traditional stores of value such as gold. 

But the extreme volatility seen in some currencies, and their use to finance and launder illegal activities have drawn skepticism from central bankers.  

Some countries, however, have begun to accept cryptocurrencies as legal tender. El Salvador made bitcoin legal tender last year, for example. 

The Fed sought public input on a list of 22 questions related to the potential creation of a CBDC.