Why the Fed should consider its own digital currency: former FDIC chairman

While the cryptocurrency market has been labeled as instable, given the proper oversight, the Federal Reserve can restore confidence in banks if they issued their own digital currency, according to former FDIC Chairman Sheila Bair.

In a recent op-ed Bair took a balanced view on why the Fed needs to get serious about looking at cryptocurrencies.

A potential downside to a central bank-issued digital currency is the prospect of the Fed losing control over the money supply, she told FOX Business on Thursday.

“If a private entity really did find a stable value cryptocurrency that would be widely accepted I think there could be a … different kind of bank run -- a flight out of banks into that cryptocurrency,” she said to Maria Bartiromo on “Mornings with Maria.”

However, the idea also presents advantages to the overall economy, she said, by allowing people to save more by increasing interest rates and borrowing less.

“It would be highly efficient because the whole idea right now that the main tool that they use to govern interest rates is interest on excess reserves,” she said. “So they pay interest to big banks on the reserve deposits they have -- it’s about 1.95% now -- it doesn’t trickle down.”

But Bair isn’t the only one eyeing electronic money. In May, Bank of England Governor Mark Carney said that he was open to the prospect of a central bank-issued digital currency to maintain trust in money.