Fed chief casts doubt on benefits, safety of cryptocurrencies

Fed chief casts doubt on benefits, safety of cryptocurrencies
© Anna Moneymaker

Federal Reserve Chairman Jerome Powell on Wednesday expressed doubts about the usefulness of cryptocurrency for anything other than obscuring illegal activity.

Powell told a House panel that virtual currencies such as bitcoin are too volatile to hold consistent value, pose serious risks to consumer safety, and inhibit crackdowns on illicit finance.

“Cryptocurrencies are great if you’re trying to launder money or hide money, so we have to be very conscious of that,” Powell said in testimony before the House Financial Services Committee.

ADVERTISEMENT

Powell also said that cryptocurrencies lack inherent value and aren’t accepted as payment in enough places to give virtual coins any “intrinsic value.”

“There is no promise behind that. It’s not really a currency. It doesn’t really have any intrinsic value, so I think there are investor and consumer protection issues as well,” Powell said.

Regulators have paid close attention to virtual coins and related investment offerings since late 2017 when the value of bitcoin and other cryptocurrencies exploded.

The massive spike in cryptocurrency prices drew thousands of investors, entrepreneurs and fraudsters into the market, which quickly expanded to accommodate their demand.

Federal regulators have sought to tread carefully around the development of cryptocurrencies and the blockchain distributed ledger system while cracking down on fraudulent or illegal trades.

The Securities and Exchange Commission and Commodity Futures Trading Commission (CFTC) have both broken up numerous fraud schemes using cryptocurrencies. They’ve also penalized companies that have violated or sought to circumvent federal trading laws.

The SEC and CFTC have both asked Congress to grant them broader authority to police cryptocurrency markets and offerings, but lawmakers have held back on legislating while they struggle to learn more about the technology.

Powell advocated for a stronger federal regulatory framework and consumer education efforts for cryptocurrencies, but said the SEC, CFTC and Treasury Department should lead those efforts.

“There’s a broad concern that the public needs to be well informed about this, and the money laundering and terrorist financing is a big risk,” Powell said.

Powell also shot down hopes that the Fed would issue its own cryptocurrency, an idea floated by other international central bankers.