On Wednesday (18 July 2018), Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System (the U.S. central bank), said that “cryptocurrencies are great if you’re trying to hide money.”
This comment was part of the Fed Chair’s testimony before the Financial Service Committee of the U.S. House of Representatives (“The House”), and it came when he was asked a question by U.S. congressman Patrick McHenry.
McHenry, who is the Republican representative for North Carolina’s 10th congressional district, and more importantly, the Vice Chairman of the House Financial Services Committee, asked Powell the following question: “Can you outline to me your thinking on cryptocurrency?”
This is how Powell replied:
“… I think the question I was asked that you are referring to was 'Do cryptocurrencies currently present a serious financial stability threat?', and my answer was 'They are not big enough to do that yet.' That's what I was saying, not that they are not a longer term thing… They are very challenging because, you know, cryptocurrencies are great if you're trying to hide money or if you're tying to launder money… So we have to be very conscious of that. There are also significant investor risks. Investors, relatively unsophisticated investors, see the asset going up in price, and they think 'This is great! I will buy this.'… In fact, there is no promise behind that. It's not really a currency… It doesn't have any intrinsic value. So, I think there are investor and consumer protection issues as well. Another thing I'll say is that we are not looking at this at the Fed as something that we should be doing, that the Fed would do a digital currency. That's not something we are looking at. So, mainly, I have concerns. I mean, if you think about what currencies do, they're supposed to be a means of payment and a store of value, basically, and cryptocurrencies are not really used very much in payment. Typically, people sell their cryptocurrencies, and then pay in dollars… In terms of a store of value, look at the volatility, and it's just not there.”
Powell’s comments came hours before a “Subcommittee on Monetary Policy and Trade” hearing (called “The Future of Money: Digital Currency”) of the House Financial Services Committee. According to the memorandum, the purpose of the yesterday’s hearing was to “examine the extent to which the United States government should consider cryptocurrencies as money and the potential domestic and global uses for cryptocurrencies”, with the idea being that the Subcommittee would “evaluate the merits of any uses by central banks of cryptocurrencies, and discuss the future of both cryptocurrencies and physical cash.”
It is interesting to note that Powell’s negative view of cryptocurrencies does not seem to have changed much (if any) since 28 November 2017, when at his confirmation hearing for the central bank’s top job, Powell made the following remarks to the Senate Banking Committee:
“They don't really matter today; they're just not big enough. There isn't close enough volume to matter… in the long, long run, cryptocurrencies and things of that nature could matter.”