Go find someone else to regulate them.
Fed Chairman Jerome Powell, during his testimony before the House of Representatives Committee on Financial Services, was asked by representatives Patrick McHenry (R, North Carolina) and Juan Carlos Vargas (D, California) about the Fed’s thinking on cryptocurrencies. Instead of pussyfooting around the issues, as Fed chairs used to do, he refreshingly stepped right into it, with both boots on the ground, so to speak.
McHenry, “Could you outline your thinking on cryptocurrencies?” Powell:
1. No serious financial stability threat yet: “I think the question I was asked that you’re referring to was, ‘Do cryptocurrencies currently (strong emphasis) represent a serious financial stability threat.’ And my answer was, ‘They’re not big enough to do that yet (strong emphasis).’ That’s really what I was saying – not that they’re not a longer-term thing.
2. They’re great for hiding or laundering money: “They’re very challenging because cryptocurrencies are great if you’re trying to hide money, or if you’re trying to launder money. So we have to be very conscious of that.”
3. Investor and consumer protection issues: “There are also significant investor risks: Relatively unsophisticated investors see the assets going up in price (head and eyes do a quick tilt toward the ceiling), and they think, ‘This is great, I buy this.’ In fact, there is no promise behind that. It’s not really a currency. It’s… it’s… It doesn’t really have any intrinsic value. So I think there are investor and consumer protection issues as well.”
4. No Fed-coin: “We’re not looking at this at the Fed, that the Fed would do a digital currency. That’s not something we’re looking at.”
5. Cryptocurrencies are not functional currencies: “If you think about what currencies do: they’re supposed to be a means of payment and a store of value basically. Cryptocurrencies are not really used very much in payment (for legal transactions). Typically, people sell their cryptocurrencies and then pay in dollars. In terms of a store of value… look at the volatility. It’s just not there.”
McHenry: Have there been discussions with other G-7 central banks about cryptocurrencies? Powell:
6. It’s a big risk the public needs to be informed about: “It comes up a lot, yeah. I’m only just starting to go to G-7 meetings, but it comes up quite a bit in international forums of various kinds. There is a broad concern that the public needs to be well-informed about this. The money-laundering and the terrorist financing and all of that is a big risk.”
7. But we don’t have jurisdiction: “The BIS (Bank for International Settlements) report and others have called out these risks and have called on the appropriate regulatory bodies to address them. We don’t have jurisdiction over cryptocurrency. We have jurisdiction over banks, and so we know their activities with cryptocurrency companies and cryptocurrency, we can address that. The SEC can address the investor protections aspect of it.”
8. Is lack of jurisdiction an impediment to monetary policy? “Not at all today.”
McHenry: Though there are money service license requirements in 52 states and regulations by CFTC and SEC, there is no “concerted effort by the federal government to understand what’s happening in crypto. Do you have any staff resources devoted to crypto?”
9. Go find the place that has authority: “We’ve looked at it carefully. I spoke about it. Other governors have spoken about it. Reserve bank presidents have spoken about it. There’s plenty of work going on, but again we don’t have this regulatory authority to deal with it, so that’s the key thing, is to be looking at the places where there is that regulatory authority.”
10. I’m not going to say ‘yes’ today:
Vargas: Should you have jurisdiction of cryptocurrency?
Powel: “That’s a deep question (struggling). We’re not seeking it.”
Vargas: “But should you?”
Powell: “I’m not going to say ‘yes’ today. We’re not looking to… you know, it’s right in the middle of the SEC’s turf, the investor protection aspects of it, I think Treasury and Fincen (Financial Crimes Enforcement Network) and other people have… I think it should be well-regulated, but I don’t see us as the right group to do that.”