Unless
the government issues digital currency, it will not likely "drive
out" currency issued by the central bank of a credible and stable
government "any time soon," according to Federal Reserve Bank of
Philadelphia President Patrick Harker in prepared remarks on April 3, 2017. At
the University of Pennsylvania School of Engineering and Applied Science,
Harker also touched on interest rate increases by the Fed, and said, "I
view three rate hikes as appropriate in 2017, assuming things stay on
track." He added, "I continue to believe they should be gradual, both
in pace and increments."
In
his address—Fintech: Revolution or Evolution?—Harker said the
question regarding digital currency is whether there will ever be one that is
stable enough to become as widely used as a government one. Privately issued
currencies can lead to unstable money supply and depreciation of the currency,
he said, because there’s no fundamental guarantee of its value in the same way
that there is with currency issued by a central bank. Harker noted that some
governments are exploring the possibility of producing their own digital
currencies. However, he mentioned that several hurdles remain, including
technical challenges, the risk of cyber attacks, the potential for criminal
activity such as money laundering, and threats to privacy.
Even
if fintech is "wildly successful," Harker said, "Banks aren’t going anywhere." Comparing bankers to real estate agents, who survived the advent of e-commerce
better than travel agents, Harker stressed that, "no matter what happens
in the world of fintech, you still need a trusted broker of money. The roles
may change and adapt, but someone needs to be the source of funds and
credit."
Harker
told the audience that "a large portion of government’s role in fintech
will be regulation." Regulators must create oversight that allows for
innovation while protecting markets and consumers, he said. "[I]t’s in
fintech firms’ best interest to know what’s expected from them from the
beginning."
Harker
said fintech is not so much a revolution as a continuing evolution that the
banking system has seen for the past 40 years, with, for example,
securitization, credit scoring, and prepaid cards. "[I]t’s just a
different delivery system."
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