Last week, exiting Federal Reserve Chair Ben Bernanke penned a letter to United States senators to give his thoughts on bitcoin and other virtual currencies. Bernanke has distanced himself from the topic for years, but has now come out confirming that the central bank cannot regulate virtual currencies and added that bitcoins and others like it “may hold long-term promise.”
The letter was issued ahead of Monday’s congressional hearings on bitcoin.
Bitcoin has dominated the headlines this month as it has fluctuated in price, which is now trading at just more than $800. Also, it has been heavily criticized from staunch gold proponent, Peter Schiff, which has garnered the attention of several groups, including libertarians and critics of the Fed. Schiff recently described bitcoin as “tulipmania 2.0.”
In his letter, Bernanke explained that virtual currencies have grabbed the attention of the federal government over the past 20 years, including in 1995 when hearings were held on “the future of money.” At the time, it was argued that these alternative forms of currency may hinder law enforcement matters, but they may also “hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”
“Although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market,” wrote the Fed Chair.
He added that the only way the central bank can have regulatory powers over a virtual currency is if it is issued by one of its banking organizations that the Fed supervises.
“Given the Federal Reserve”s authority and the manner in which virtual currencies have developed, the Federal Reserve has focused primarily on a supervised banking organization’s role in the products’ sale and distribution, as well as the applicable regulations, such as Bank Secrecy Act (BSA) /anti-money laundering (AML) requirements,” Bernanke stated.
The reason why some goldbugs are opponents of bitcoin is that they feel the virtual currency does not maintain any value, it is not backed by anything and it is easily tracked by the federal and state governments as well as the Federal Reserve. Gold and silver, meanwhile, cannot be tracked.
Others also feel that bitcoin is in a bubble at the moment.
“A bubble is a bubble. And there’s a bubble in bitcoins,” said Schif.
“I don’t see bitcoins as an alternative to gold,” Schiff said. “If anything, [the creators of bitcoin are] modern-day alchemists, but you can’t make gold digitally. It’s no better than a fiat currency.”
Of course, though, anything is better than owning the U.S. dollar.