In his speech in Congress on Wednesday, July 18, the head of US Federal Reserve Jerome Powell made a number of critical statements against bitcoin and other cryptocurrencies. In particular, he noted that cryptocurrencies "are great" for money laundering, Bloomberg reports.
Also, Powell stressed the big risks that cryptocurrencies bear for investors. In his opinion, cryptocurrencies are a bubble, attractive for inexperienced investors.
"This is not a real currency. And we do not consider cryptocurrencies as our jurisdiction. But they worry me," Powell said.
However, at the moment the head of the Federal Reserve does not see a special threat to traditional currencies from digital assets.
Jerome Powell led the Fed in February this year, succeeding Janet Yellen. The last one was also remembered by the negative comments on the cryptocurrencies. In December last year, she called bitcoin an extremely speculative asset, which can not be considered a reliable means of preserving the value
Later on, during the hearings in the Senate Subcommittee on Monetary Policy and Trade, senators and economists discussed issues related to the widespread adoption of digital assets during a session called "The Future of Money: Digital Currency".
One of the key issues during the hearings became the question of whether central banks need to create their own digital assets and a Central Bank Digital Currency, (CBDC). Professor of Economics at the University of California in Santa Barbara Rodney Garratt said that banks should decide on whether they want to outright refuse to provide crypto payment services to the public, and if not, are they ready to use alternative methods of payment?
Alex Pollock, a senior fellow of R Street Institute, said that for a central bank to have its own digital currency, would be a dreadful idea, but that it’s quite possible. According to Pollock, such assets will increase the role and authority of banks. In addition, if the Federal Reserve System starts using CBDC, it will become an “overwhelming credit allocator of the U.S. economic and financial system.”.
When the chairman of the Subcommittee, Andy Barr asked if cryptocurrencies could function as a substitute for money, Garratt replied that at this point “in terms of a conceptual idea”, cryptographic assets may be a currency, but not a very effective one. He said that as a means of payment they are not effective because of high volatility. But the expert has suggested that volatility may decline as Cryptocurrencies become widely adopted.
The vice-chairman of the Subcommittee, Roger Williams, asked about the main obstacles to accepting cryptocurrency, and how the U.S. Congress can influence this to which Norbert Michel, director of the Data Analysis Center at the Heritage Foundation, said that the capital gains tax is the biggest obstacle due to the difficulties in tracking incomes.
Michel reminded the senators of the importance of prudent regulation of cryptology: strict limitations for this sector can't be justified by the fact that cryptocurrencies are used as a tool for money laundering:
"Yes it is true that criminals have used bitcoin, but it's also true that criminals have used airplanes, computers, and automobiles. We shouldn't criminalize any of those instruments simply because criminals used them."
WHY IS IT IMPORTANT?
1. U.S is one of the most important countries for the crypto industry and recently became the first by the number of ICO it’s launching. All cryptocurrency exchange transactions in the U.S. are taxed, and the country is placing strict requirements for foreign crypto exchanges.
2. America is actively fighting against money laundering, and against drug trafficking industries that use crypto for their exchanges. Earlier in June, the U.S. House of Representatives Committee on Financial Services proposed a bill carrying out a study on how virtual currencies and online marketplaces are used in sex and drugs trafficking. Recently the President of the U.S., Donald Trump has signed a decree on the creation of a task force that will investigate crimes including cryptocurrencies.
3. Despite the ongoing fight against crypto crimes, regulators still can not find a middle ground regarding the role of cryptocurrencies in U.S finance.