Ben Bernanke comments on bitcoin

Federal Reserve Chairman Ben Bernanke | Creative Commons image by Talk Radio News Service

On Monday, US legislators held their first-ever congressional hearing on virtual currencies, in particular bitcoin – the controversial crypto-currency.

As US authorities discussed the pitfalls and benefits of bitcoin – citing concerns over anonymity and lack of regulation – the price of one bitcoin soared to more than $750 apiece.

Monday’s hearing is the first of two being held this week, but no legislative proposals are expected, according to the Wall Street Journal. The purpose of discussions is information gathering.

In a letter dated September 6 but released Monday, US Federal Reserve Chairman Ben Bernanke weighed in. Some have called the letter a “cautious blessing” while others say Bernanke “mostly distanced himself” from the virtual currency.

Excerpts from Bernanke’s September letter, in response to a letter from the Committee on Homeland Security and Governmental Affairs asking for information on virtual currencies:

“Historically, virtual currencies have been viewed as a form of “electronic money” or area of payment system technology that has been evolving over the past 20 years. Over time, these types of innovations have received attention from Congress as well as U.S. regulators. For example, in 1995, the U.S. House of Representatives held hearings on “the future of money” at which early versions of virtual currencies and other innovations were discussed. Vice Chairman Alan Blinder’s testimony at that time made the key point that while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may 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. In general, the Federal Reserve would only have authority to regulate a virtual currency product if it is issued by, or cleared or settled through, a banking organization that we supervise. 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.”

“The Federal Reserve plans to work with other FFIEC member agencies on electronic cash and related issues such as virtual currencies, as needed, for banking organizations. The Federal Reserve will continue to monitor developments as part of its broad interest in the safety and efficiency of the payment system. We also stand ready to cooperate with other agencies in fulfilling their mandates, as appropriate.”

See the full exchange here.