instrument is presumed to be its owner. further, cryptocurrencies are easy to transfer across borders. indeed, a cryptocurrency that mimics a bearer instrument and provides significant anonymity in transactions, including across borders, could raise significant concerns regarding the potential to facilitate illicit activities and associated money laundering. for example, electronic instruments can be easily transferred and stored in large amounts, and peer - to - peer transactions outside of the united states could be very hard to prevent and detect. such instruments appear to have proven susceptible for use to convey payments to illicit actors - - for example, to pay ransoms. overall, however, the still relatively small scale of cryptocurrencies in relation to our broader financial system and relatively limited connections to our banking sector suggest that they do not currently pose a threat to financial stability. 5 of course, if cryptocurrencies were to achieve wide - scale use, or their impact were greatly magnified through leverage, the effects could be broader. in particular, adverse developments and shifts in sentiment could cause a global rush to exit this market. as we have seen in other speculative activity in the past, rushfor - the - exits behavior can aggravate price fluctuations, create trading difficulties, and even induce market breakdowns. thus, we will continue to monitor cryptocurrencies as they evolve, with particular vigilance for any signs of growing materiality to the broader financial system. central bank digital currencies given some of the inherent issues and challenges that cryptocurrencies pose for investor and consumer protection and the prevention of money laundering, some have advocated that central banks should create their own digital forms of currency as more stable and reliable see https : / / g20. org / sites / default / files / media / communique _ - _ fmcbg _ march _ 2018. pdf. - 5alternatives to cryptocurrencies. after all, a central bank digital currency could overcome the volatility risks associated with an unbacked asset with no intrinsic value by substituting a digital instrument that is the direct liability of the central bank. moreover, advocates suggest a central bank would be able to develop a transfer mechanism that has robust governance. even though central bank digital currencies may at first glance appear to address a number of challenges associated with the current crop of cryptocurrencies, this appeal may not withstand closer scrutiny. 6 first, there are serious technical

appreciably and be ready to adapt policy flexibly. that flexibility could entail doing more to ease credit if the economy proves resistant to the monetary and fiscal stimulus now in train, or it could involve reversing actions to forestall potential inflationary effects of past actions, as i will discuss in a moment. in gauging the effects of market interventions in the current crisis, one approach is to look to the size of increases in the quantity of reserves and money to judge whether sufficient liquidity is being provided to forestall deflation and support a turnaround in growth – an approach often known as quantitative easing. the linkages between reserves and money and between either reserves or money and nominal spending are highly variable and not especially reliable under normal circumstances. and the relationships among these variables become even more tenuous when so many short - term interest rates are pinned near zero and monetary and some nonmonetary assets are near - perfect substitutes. in our approach to policy, the amount of reserves has been a result of our market interventions rather than a goal in itself. and, depending on the circumstances, declines in reserves may indicate that markets are improving, not that policy is effectively tightening or failing to lean against weaker demand. still, we on the federal open market committee ( fomc ) recognize that high levels of federal reserve assets and resulting reserves are likely to be essential to fostering recovery, and we have discussed whether some explicit objectives for growth in the size of our balance sheet or for the quantity of the monetary base or reserves would provide some assurance that policy is pointed in the right direction. loans or credit protection offered in association with government help to stabilize individual systemically important institutions probably have higher credit risk than the more general liquidity facilities described in this talk. but even in those cases, the federal reserve has taken steps to protect itself from credit losses. will these policies lead to a future surge in inflation? no, and the key to preventing inflation will be reversing the programs, reducing reserves, and raising interest rates in a timely fashion. our balance sheet has grown rapidly, the amount of reserves has skyrocketed, and announced plans imply further huge increases in federal reserve assets and bank reserves. nonetheless, the size of our balance sheet will not preclude our raising interest rates when that becomes appropriate for macroeconomic stability. many of the liquidity programs are authorized only while circumstances in the economy and financial markets are " unusual and exigent, " and such