WASHINGTON Federal Reserve Board Chair Janet Yellen said today that the central bank does not have the power to supervise Bitcoin, the most widely-recognized digital currency.
"Bitcoin is a payment innovation that's taking place outside the banking industry," says Yellen, who delivered the Fed's semiannual monetary policy report to the Senate Banking Committee. "To the best of my knowledge, there's no intersection at all in any way between Bitcoin and banks the Federal Reserve has the ability to supervise or regulate. The Federal Reserve simply doesn't have the authority to supervise or regulate Bitcoin in any way."
Her comments came in response to a question by Sen. Joe Manchin, an outspoken critic of the digital currency. The West Virginia Democrat sent a letter to federal regulators, including Yellen, on Feb. 26 calling for them to ban or at least limit the virtual currency in the U.S. Manchin alleges that Bitcoin is "unregulated and unstable," and can be used for illegal activity such as money laundering.
"Due to Bitcoin's anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users," wrote Manchin. "Anonymity combined with Bitcoin's ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions."
Yellen acknowledged concerns tied to money laundering, but said the Financial Crimes Enforcement Network has indicated that current statutes are "adequate" to police the issue.
Still, Manchin persisted in asking Yellen whether the U.S. was "behind the curve" relative to other countries which have provided warnings or issued regulations.
Both Thailand and China have banned the currency, while South Korea has said it will not recognize Bitcoin as a legitimate currency. Other nations, including the European Union, have raised concerns, calling on their regulators to consider how to oversee the virtual currency or ban it entirely.
"While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies' warnings," Manchin wrote in his letter. "I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency."
But Yellen remained steadfast that the "Fed doesn't have the authority with respect to Bitcoin" and encouraged lawmakers to figure out the right course of action.
"Certainly, it would be appropriate for Congress to ask questions about what the right legal structure would be for digital currencies," she said.
But the Fed chair said it's "not so easy to regulate" the currency "because there's no central issuer or network operation."