New York Fed economists unconvinced on crypto’s viable uses

Advanced economies may have no need for cryptocurrencies, economists at the Federal Reserve Bank of New York have said.

In a Q&A published online, Michael Lee and Antoine Martin discuss the merits of cryptocurrencies and the instances in which they are used.

“Cryptocurrencies arguably solve the problem of making payments in a trustless environment, but it is not obvious this is a problem that needs solving, at least in the US and other advanced economies,” Martin says.

The “trust-proofing” provided by cryptocurrencies comes at the expense of convenience, he continues.

“If we lived in a dystopian world without trust, bitcoin might dominate existing payment methods,” Martin says.

Similarly, Lee notes trading in cryptocurrencies tends to rise when trust is low: “when Greece fell deeper into financial distress in 2015, Greek interests and trading in bitcoin rose quickly, amidst fears of capital controls and the possibility of exiting the eurozone. Bitcoin became attractive as trust eroded.”

However, in the current landscape, where people “tend to trust financial institutions” to execute payments and central banks to maintain the value of money, Martin believes it is unlikely cryptocurrencies will ever be as convenient as existing payment architecture.