Dudley Says Fed Has Started Thinking About Official Digital Currency

By Michael S. Derby Features Dow Jones Newswires

NEW BRUNSWICK, N.J. -- Federal Reserve Bank of New York President William Dudley said Wednesday the U.S. central bank is beginning to explore whether it could adopt its own digital currency, in an appearance at Rutgers University where he also expressed optimism about the economy.

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Mr. Dudley was asked about his views on bitcoin, a digital currency that has soared in value this year, raising fears about a bubble. Bitcoin crossed the $10,000 mark this week for the first time in its nine-year history.

Mr. Dudley said bitcoin is too small right now to be a rival to the dollar. He said bitcoin also is failing the key test of a currency, which is to be a stable store of value that can be used widely.

Bitcoin is "really more of a speculative activity," Mr. Dudley said. But he said aspects of the technology are interesting and worthy of attention. "It's premature to be talking about the Federal Reserve offering digital currencies, but it is something we are starting to think about," he said.

Some academics have called for the Fed to offer its own digital currency. They believe it would afford the central bank better control over the economy by tweaking interest rates at the consumer level, bypassing fickle financial markets that often work at cross-purposes with Fed policy aims.

Supporters of official digital money say the central bank could end up being pushed off the sidelines if private efforts eventually succeed on a mass scale.

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Mr. Dudley didn't discuss the monetary policy outlook at Rutgers, where he spoke to students and community members. On the economy, he said "it looks like the expansion has a lot of way to go" and that makes him unworried about "buoyant" financial markets that he believes reflect the vigor of the economy.

Mr. Dudley's comments Wednesday were his third set of public remarks in an active week for the Fed. On Tuesday, Fed governor Jerome Powell testified at a Senate hearing on his nomination to become Fed chairman next year. Wednesday morning, departing central bank leader Janet Yellen is testifying before Congress about the state of the economy and monetary policy.

Fed officials are expected to deliver their third interest-rate increase of the year at their policy meeting Dec. 12-13. Mr. Powell on Tuesday suggested such an action is likely.

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

(END) Dow Jones Newswires

November 29, 2017 10:29 ET (15:29 GMT)