The Federal Reserve’s new chairman made his stance on cryptocurrency clear to the US House of Representatives on Wednesday.
In his view, cryptocurrencies have no intrinsic value, are not used often as a means of payment, are not a store of value, but are great for money laundering.
He also dismisses the idea that cryptocurrencies could pose a significant risk to the country’s financial stability at their current size.
Powell’s Testimony
The chairman of the U.S. Federal Reserve who took office in February, Jerome Powell, answered questions about cryptocurrencies in his testimony before the House Financial Services Committee on Wednesday.
This committee has jurisdiction over issues pertaining to the U.S. economy, banking system, housing, insurance, securities, exchanges, monetary policy, international finance, international monetary organizations, and efforts to combat terrorist financing.
U.S. Representative and vice-chairman of the committee, Patrick T. Mchenry, asked Powell to outline his thinking on cryptocurrencies. The chairman replied that there are “significant” risks to “relatively unsophisticated investors” who “see the asset going up in price and they think this is great; I’ll buy this [but] in fact there is no promise behind that.” He elaborated:
Cryptocurrencies are great if you’re trying to hide money or if you’re trying to launder money…it doesn’t really have any intrinsic value so I think there’re investor or consumer protection issues as well.
Furthermore, regarding whether the Fed is considering issuing its own digital currency, the chairman clarified, “that’s not something we’re looking at,” reiterating, “we’re not looking at this at the Fed as something that we should be doing.”
As for whether cryptocurrency is a currency, Powell claims that “it’s not really a currency,” clarifying:
If you think about what currencies do, they’re supposed to be a means of payment and a store of value, basically. And cryptocurrencies…they’re not really used very much in payment. Typically people sell their cryptocurrencies and then pay in dollars. In terms of a store of value, you know, look at the volatility and…it’s just not there.
Regulatory Framework
While questioning Powell, Mchenry outlined the current regulatory framework for cryptocurrency in the U.S. He detailed that each of the 50 states has its own requirements for crypto businesses operating locally such as obtaining a money service license.
There are also regulators such as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) that have some jurisdiction over cryptocurrency when it falls under their domain, he described, reiterating:
There’s some broad [regulatory] framework of it but not a concerted effort by the federal government to understand what’s happening in cryptocurrency.
No Serious Risk to Financial Stability
Mchenry further asked Powell whether the Fed sees cryptocurrency impairing its ability “to act on monetary policy, given the current shape and scope of the size of the market.” The Fed chair replied, “not at all today.”
Powell additionally explained his previous statement regarding the impact of crypto on the country’s financial stability. He recalled being asked, “do cryptocurrencies currently present a serious financial stability threat?” He clarified:
They’re not big enough to do that yet. That’s really what I was saying, not that they’re not a longer-term thing.
Powell believes that the recent BIS report and others have adequately outlined risks associated with cryptocurrency “and called on the appropriate regulatory bodies to address them.” He emphasized, “we don’t have jurisdiction over cryptocurrency. We have jurisdiction over banks,” adding that those with jurisdiction such as the CFTC and the SEC can address the investor protection aspects of crypto.
This week, the Financial Stability Board (FSB) also said that “Crypto-assets do not pose a material risk to global financial stability at this time.”
