Jeremy Powell, Chairman of the Federal Reserve System (the central bank of the U.S., aka “The Fed”), while testifying before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on Thursday (July 11), compared Bitcoin to gold.
During his testimony, Chairman Powell talked about cryptocurrencies, namely Facebook’s Libra and Bitcoin.
The first crypto-related question came from Senator Robert Mendez (D-NJ), who started by saying that Chairman Powell had stated, during his testimony on Wednesday (July 10) in front of the House Financial Services Committee, that any problems that could emerge through Libra would “arise to systematically important levels just because of the mere size of Facebook”. His question was whether or not Facebook was “too big to build its own digital currency.”
Powell responded by saying:
I think it's too early to say that. I think we are at the beginning of assessing that. I think the size of their network does focus your attention on the very likely systemic importance of this currency. And that doesn't mean they shouldn't do it… At a minimum, it means that the standards that need to be applied to it will be the highest.
Mendez then asked Powell if Libra goes ahead, does this mean that we should start to become concerned about “another too big to fail institution tethered to the U.S. economy.”
I certainly hope not, Senator…
Later, Senator Mark Warner (D-VA) asked the Fed Chair if he shared Former FDIC Chair Sheila Bair’s concern about the liquidity risks posed by Libra and if he agreed about the need for regulatory oversight.
I do… I think we need to a very careful, patient, thorough assessment of what the risks really are. I think that's going to take a little time. The idea that this would be going into implementation within 12 months, I think, is not going to be proven right. I think we're going to take more time than that…
Powell continued by explaining why regulatory oversight of Facebook is going to be so difficult:
One of the key issues is that there isn't really a single credible regulatory authority that can be responsible for oversight… It falls into many, many pockets… state, federal, international… We really haven't even got to the basics yet.
Senator Mike Crapo (R-ID), the Chairman of this Senate Committee, asked if Chairman Powell was aware of any other global cryptocurrency projects that are currently being developed.
Not really. There are companies that are looking at internal stablecoin type ideas to use with their customers, but I'm not aware of anything that could potentially be quite so scalable so quickly as this given the existing that the company has.
Senator Crapo’s next question was if a “cryptocurrency system” were to achieve mass adoption throughout the world, could that not reduce the need for a world reserve currency.
I think things like that are possible, but we haven't seen them… We haven't seen widespread adoption. Bitcoin is a good example. Really, almost no-one uses Bitcoin for payments. They use it more as an alternative to gold. It's a store of value, a speculative store of value like gold… If we do see it, you could see a return to an era in the United States where we had many different currencies, in the so-called National Banking era.
Chairman Powell’s comments about Bitcoin angered Peter Schiff, Peter Schiff, the CEO of Euro Pacific Capital (a full-service, registered broker/dealer specializing in foreign markets and securities), and founder and Chairman of SchiffGold (a full-service, discount precious metals dealer), and a man who is extremely bullish on gold, bearish on the U.S. dollar, and highly skeptical about Bitcoin.
So, Schiff sent out the following tweet to express his disappointment at seeing the Fed Chair “validate” Bitcoin as an alternative to gold:
Just like Alan Greenspan encouraged homebuyers to take out ARMS at the height of the housing bubble, Jerome Powell effectively just did the same thing with Bitcoin. By claiming it's similar to gold he not only validated Bitcoin, but encouraged people to buy into the bubble.
— Peter Schiff (@PeterSchiff) July 11, 2019