Head of the Federal Reserve, Jerome Powell on Wednesday in responding to a US federal Committee said that cryptocurrencies did not pose a “significant risk” to the stability of the current financial system. He also said that the crypto is “not a means of payment.”
The House Financial Services Committee questioned Powell, who has been the incumbent Chairman of the Federal Reserve Bank since February, on cryptocurrencies. The Committee which has fiduciary powers on subjects of monetary policy, banking system, insurance, and international monetary organizations, wanted Fed Reserves observations on the topic of cryptocurrency.
Good for money laundering
To question raised by Patrick T.Mchenry of the Representative and vice-chair of the Committee, Powell remarked that at the outset the currency had ‘significant risks to the unsophisticated investors.’ Such investors see the rise of the prices and are lured by its great opportunity. They fail to see that that there is nothing to back the promise.
He commented that ”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.”
In his opinion, cryptocurrency is in reality, not a ‘currency,’ as it cannot be used as a means of payment and when used as a store of value has no significance. He states that people will sell cryptocurrencies but will pay in dollars. Hence the value is lost because of the volatility.
Powell responded to questions on regulating the industry as the combined efforts of multiple regulatory bodies, namely – Commodity Futures Trading Commission, Securities, and Exchange Commission.
These bodies have jurisdiction on different domains of cryptocurrency and hence a broad framework is already in place but none that are in particular or specifically applied to cryptocurrency. He added that the BIS had recently concluded a string of parameters which would be implemented by central banks in order to safeguard the interests of consumers of the bitcoin industry.
He reiterated that there was no serious risk to the stability of the financial system in the country, in response to a question on impairment of its abilities. Powell stated that that cryptocurrency could not impair the system since it did not possess the ability to ‘act on monetary policy.’ The effect would be nullified since its current format; the scope of size in the market is very limited.
Besides, the Chairman reiterated that he did not see the virtual coins affecting the stability of the financial system due to lack of size.
His statements found an echo in the comments made by the Financial Stability Board of the FSB, which also views ‘crypto-assets’ as non-threatening instruments since they did not hold ‘material risk’ to the financial stability, at this point of time.
The head of the Federal organization believes that there is a cause or reason for the central bank to release its own digital currency. He clarified that issuing coins is not a consideration at this point, as the Fed since did not see that this was something that “should be done.”