US Federal Reserve chairwoman Janet Yellen has issued new comments on how she believes the country’s financial regulators should address bitcoin and blockchain technologies, stating that these agencies must be careful not to “stifle innovation”.
The statements were issued in response to a question submitted to Yellen by US Representative Mick Mulvaney following a 15th July meeting of the House Committee on Financial Services’ Monetary Policy and Trade, of which he serves as vice chairman.
In his 11-page submission, Mulvaney sought clarity as to how the central bank viewed the increasing popularity of bitcoin after this summer’s economic crisis in Greece, notably asking Yellen if the technology’s increasing popularity implied the public may be losing faith in the Fed’s ability to conduct monetary policy.
“We do not interpret bitcoin’s popularity as having a relationship with the public’s view of the Federal Reserve’s conduct of monetary policy.”
Despite asking two questions, Yellen focused most of her response on how she believes regulation should develop in the US, emphasizing that the Federal Reserve and federal banking agencies have “limited authority over the operation of digital currency systems” as a whole.
“Where a banking organization supervised by the Federal Reserve provides services to a business or individual that is an administrator or exchange of a digital currency, the Federal Reserve seeks to ensure that the banking organization fully complies with all applicable regulations,” Yellen stated.
Other federal and state regulators, she continued, may have different authorities over the technology, depending on their specific mandates.
The remarks are consistent with past public statements given by Yellen in regards to the development of bitcoin and blockchain technologies.
Yellen first addressed the technology in a Senate Banking Committee meeting last February, at which time she stated that the US central bank does not have the authority to supervise or regulate digital currency systems such as bitcoin.
Costs and benefits
Yellen suggested that US authorities weigh the “costs and benefits” of new statutes or regulations carefully.
Aspects to consider, she suggested, include how such laws could “strengthen the soundness of virtual currency schemes and increase public trust in the products” and whether the technology represents a “significantly different or greater risk” than other new payment systems.
Yellen cautioned that the “evolving nature” of the technology means that such laws should not stifle innovation, a balance that regulators have so far stressed they are seeking to strike with mixed success.
“Some may refrain from investing in or using digital currencies due to a perceived legal uncertainty and/or lack of consumer protection,” she continued.
New York’s state-specific regulatory regime for digital currencies, for example, has come under fire by industry supporters for being overly vague while imposing high costs on startups.
Other attempts, such as those ongoing in California, have been met with equally mixed public responses.
Federal Reserve image via Shutterstock