Cryptocurrencies aren't getting any special treatment, said St. Louis Federal Reserve Bank President James Bullard.
Speaking at the Consensus 2018 event in New York on Monday, Bullard explained that cryptocurrencies have begun to operate as non-uniform currencies, as there are more than 1,800 cryptocurrencies, many of which trade at different prices at the same time in the same local markets.
Non-uniform currencies such as these have, at least historically, been rejected and replaced in financial markets, Bullard suggested. That means bitcoin and its crypto cohorts have quite a ways to go on the road toward ubiquity in global financial markets. "They've got to compete just like everybody else ... welcome to the currency competition game," Bullard said.
The U.S. dollar is among the biggest competitors that cryptocurrency faces an uphill battle in dethroning, Bullard said.
"Cryptocurrencies may be unwittingly pushing in the wrong direction in trying to solve an important social problem, which is how best to facilitate market-based exchange," Bullard said. The dollar, on the other hand, is backed by a stable government with direct and sensical monetary policy and persistently low inflation -- because of that, it can better achieve the goals and meet the needs of the market.
"The dollar is in great shape and will stay in great shape because it's been the winner for a long time," Bullard said. "Unless we screw up, I think the dollar is going to remain the dominant currency."
Compared to a currency such as the Venezuelan bolivar subject to rapid hyperinflation, cryptocurrency might make more sense. "They might be able to protect us against the vagaries of Venezuelan-type monetary policy," Bullard said, but in U.S. markets the dollar looks to have the upper hand when it comes to facilitating market-based exchange, Bullard noted.
"The U.S. is drifting toward nonuniform currency and that has not been popular historically," Bullard said. Although Bullard lauded the underlying blockchain technology the supports cryptocurrency, non-uniform currencies are unlikely to ever be the first choice of market participants.
Bullard added that he has not been briefed on whether the Fed would consider bailing out bitcoin and other cryptocurrency investors in the event of a market crash. For now, at least, the Fed has no such plans.
But the central bank isn't ruling out a blockchain strategy. "The Fed is not a monolithic [body] ... it's possible blockchain will play a role in the future," Bullard said.