I have some interest in monetary economics and I have been curious about what impact bitcoin is going to have on the global monetary system.
The Federal Reserve has no authority to supervise or regulate Bitcoin, chair Janet Yellen told Congress on Thursday.
Testifying before the Senate Banking Committee in the week that the controversial digital currency’s largest exchange collapsed, Yellen was asked about Bitcoin’s potential impact by senator Joe Manchin.
On Wednesday, Manchin wrote to the Fed, Treasury and other regulators warning that the currency was “disruptive to our economy” and calling for its regulation.
“Bitcoin is a payment innovation that’s taking place outside the banking industry. To the best of my knowledge there’s no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Fed doesn’t have authority to supervise or regulate Bitcoin in anyway,” said Yellen.
Yellen said there were concerns about the currency being used for for money laundering but that regulators were confident that US law was “adequate to meet enforcement needs”.
“The Fed doesn’t have authority with respect to Bitcoin,” said Yellen. “But certainly it would be appropriate for Congress to ask questions about what the right legal structure would be for digital currencies.”I read that to mean that she thinks that existing law is adequate to regulate money laundering, but that she is open to exploring how to deal with a decentralized digital currency.
“It’s not so easy to regulate Bitcoin because there’s no central issuer or network operator. This is a decentralized, global [entity]... We’re looking at this,” she concluded.
The world's banking systems are already using forms of digital currencies for the most part. Actual physical currency and coin make up only a small part of the total money supply. However, those systems operate under the control of government agencies such as the Federal Reserve and the US Treasury. Bitcoin is the most well known of new digital exchange mechanisms that are not controlled by governments. It uses the bittorrent protocol that provides peer to peer transactions without the need for a central server. There are several other similar pieces of technology.
The world of money is complex and mysterious. Most of the time it operates behind the curtain and we don't think about it as long as we have enough to get by on. At times like the major crashes of 1929 and 2008 the curtain falls down because it ceases to work smoothly and people begin to ask questions about it.
There has been a trend since WW II to create centralized international financial institutions like the IMF and World Bank. That raises all sorts of important questions about global control and who is calling the shots in that. Monetary systems that are able to operate outside of that network of institutions could pose a potential threat to their control. Depending on ones perspective that could be good or bad. It does seem like the time has come for some serious discussion about it. The topic has moved beyond the level of tech blogs/