Following her next-to-last Federal Open Market Committee (FOMC) meeting, outgoing Federal Reserve (Fed) Chairwoman Janet Yellen gave a final scheduled press conference 13 December 2017 in Washington, DC. In a growing sign of its influence, once again bitcoin was introduced as a topic for consideration at the highest levels of finance. No fewer than three times did cryptocurrencies make their way into the discussion: regulatory policy, prospects of a Fed Coin, and bitcoin’s threat to financial stability.
Fed Chair Says Bitcoin Very Small
The first woman Chair of the globe’s most powerful central bank, Janet Yellen took what amounted to a gushing victory lap in her final scheduled press conference. Reporters paused in questions to thank her. Some even asked her about future efforts to diversify the field of economics to include more women and minorities. It’s good to go out on top, for sure.
CNBC’s Steve Liesman posed the expected, wanting to know the Chair’s thoughts on equity valuations at historic highs. Before he allowed her to answer, he asked: “Maybe as a sign as to what’s been going on with valuations, this cryptocurrency called bitcoin keeps going up every day, um, what is the policy of the central bank of the United States, of the introduction, use, and incredible rise in popularity of bitcoin?”
Ms. Yellen was appointed by President Obama in 2013, and was generally considered to be more concerned with unemployment rather than inflation, a position known as dovish.
After answering the first question, she began, “And then you asked about bitcoin, and there I would simply say that bitcoin, at this time, plays a very small role in the payment system,” she said, looking down for brief moments at what appeared to be prepared notes.
“It is not a stable store of value,” Ms. Yellen continued, “and it doesn’t constitute legal tender. It is a highly speculative asset, and the Fed doesn’t really play any role, any regulatory role, with respect to bitcoin other than ensuring banking organizations that we do supervise are attentive… that they’re appropriately managing any interactions they have with participants in that market, and appropriately monitoring Anti-Money Laundering, Bank Secrecy Act, you know, responsibilities that they have,” she elaborated.
Mr. Liesman then quickly followed, “Has there been a directive about bitcoin to banks and their dealings with bitcoin from the Federal Reserve?”
“I don’t believe there’s been anything specific about that,” she said, “just generally banks have Bank Secrecy Act, Anti-Money Laundering responsibilities, and this applies to bitcoin as it does in every other realm.”
Doubtful Fed Will Create State Backed Crypto Coin
At a lull, Justine Underhill of Yahoo Finance was called upon. She referenced recent speculation by a Fed governor, suggesting the central bank was considering its own cryptocurrency. Ms. Underhill asked if this is true.
“I want to distinguish carefully between digital currency and cryptocurrency,” Ms. Yellen answered. “There is a discussion going on among central bankers about the potential merits of a central bank itself adopting a digital currency, and there might even be a central banker or two around the globe who might go in that direction,” she said, probably referring to Russia and Venezuela.
Ms. Yellen pointed her right hand for emphasis, “I really want to caution that this is not something the Federal Reserve is seriously considering doing at this stage. While we’re looking at research on this topic, there are, I think, to my mind, limited benefits for introducing it, limited need for it, and some substantial concerns, and so I would really doubt that the Federal Reserve would soon go in that direction. But it is something central banks are looking at to see if there could be benefits from doing it,” she stressed.
Fox Business Worries Bitcoin is Threat to Financial Stability
Adam Shapiro of Fox Business wondered if maybe Ms. Yellen and the Fed were in fact missing bitcoin’s threat to financial stability, referencing the 2008 financial crisis.
The outgoing Chair said, “I certainly agree it’s important for the Fed to attempt to understand the emerging risks to financial stability, and to be looking not just in the banking system but outside it for developments that could pose financial risks,” she prefaced.
“Now, when you ask about bitcoin,” Ms. Yellen concluded, “I still see the financial stability risks from it as limited. Often risks threaten financial stability when there’s exposure of the banking system to fluctuating asset valuations, and I really don’t see any significant [problems or]threats from bitcoin if its value were to fluctuate. I don’t see a threat to our core financial institutions. Undoubtedly there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don’t see that as creating a full-blown financial stability risk,” she repeated.
What do you think about Janet Yellen’s answers? Tell us in the comments below.
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Author: C. Edward Kelso