2-22-18 12:09 PM EST | Email Article
By Michael S. Derby 

Federal Reserve Bank of New York President William Dudley warned Thursday that there is considerable danger and risk right now around the rise of so-called cryptocurrencies that seek to supplant the U.S. dollar.

"There is a bit of a, I would say, speculative mania around cryptocurrencies in terms of their valuations, which I view as pretty dangerous because I don't really see what the actual true underlying value of some of these cryptocurrencies actually is in practice," Mr. Dudley said.

When it comes to the privately issued digital money, "it's essentially what people think it's worth, which seems to me somewhat dangerous," Mr. Dudley said. "I'm a little bit skeptical we actually have this tremendous need for a cryptocurrency in the United States," he added.

Fed officials have long signaled skepticism about privately issued digital money like Bitcoin, although Mr. Dudley didn't single out any particular currency by name.

Policy makers' common refrain has been that the dollar is largely stable and universally accepted, something that cannot be said about, for example, Bitcoin, the best known of these new flavors of currency. While central bankers have dismissed Bitcoin, they have showed some interest in some of its underlying technology as a potential way to improve the efficiency of the payment system.

Bitcoin has seen massive swings in its price relative to the dollar and has seen its value fall dramatically since December. Fed officials have largely been able to shrug off the tumult, given that digital currencies are still small relative to conventional currency markets, and there has been no sign falling prices in that part of the market represent a broader threat to the stability of the financial system.

Mr. Dudley's concern on privately issued digital money came at a briefing at his bank on the recovery of Puerto Rico and the U.S. Virgin Islands in the wake of devastating hurricanes last year. He said Puerto Rico has a difficult recovery process ahead of it as it seeks to put its economy back on sound footing after recent devastating hurricanes.

Despite Puerto Rico's "high debt, unfunded pension obligations, declining population, and now the hurricane," Mr. Dudley said "there are good reasons not to despair." The island is part of the New York Fed's district.

Mr. Dudley didn't talk about the U.S. national economy or the monetary policy outlook.

The official noted that Puerto Rico confronted the storm in an already troubled state. It's long had a shrinking economy, weak job market and "problematic" public debt levels, he noted, while adding that job losses tied to the storms were "substantial."

Mr. Dudley's reasons for hope rest on how other deeply troubled localities turned themselves around. He pointed to New York City's recovery from the 1970s. But it won't be an easy process, he added.

"The fiscal adjustment will be painful, and many important decisions will undoubtedly be unpopular," Mr. Dudley said. "While the pain has been -- and will continue to be -- widely shared, it is also critical to seek ways to ensure that the benefits from the restoration of growth are shared broadly."

Write to Michael S. Derby at michael.derby@wsj.com


(END) Dow Jones Newswires

February 22, 2018 12:09 ET (17:09 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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