Utah Software Engineer Mints Physical Bitcoins
© Getty Images

A US Senate hearing on the “risks, threats and promises” of virtual currencies sparked a new leg up in the price of Bitcoin, the experimental currency which has risen by more than 5,000 per cent in value this year.

An intervention by Ben Bernanke, chairman of the Federal Reserve, enabled Bitcoin’s enthusiasts to put the spotlight where they believe its potential value lies: as a cheaper alternative to the current system for transferring money around the world.

Mr Bernanke, in a letter to the Homeland Security committee, pointed out the Fed’s longstanding view that while virtual currencies pose money laundering and other risks, “there are also areas where they may hold long-term promise”.

Participants at the hearing, who included representatives of the US Treasury and Department of Justice, also emphasised that clamping down on illegal activity paid for by Bitcoin was not meant to curb financial innovation.

The price of a single Bitcoin, which was $13.50 at the end of 2012, surged more than $200 on Monday on the Mt.Gox exchange, setting a record high trade of $785.

Law enforcement officials and regulators moved to stop the use of Bitcoin as a currency for dealing drugs by shutting the underground website Silk Road and have warned Bitcoin entrepreneurs that they must introduce anti-money laundering procedures to also avoid being shut down.

Many Bitcoin businesses are finding it hard to persuade traditional banks to deal with them in the US, but enthusiasts believe that a balanced discussion of “risks” and “promises” in Congress will help thaw the climate.

Jennifer Shasky Calvery, director of the Treasury’s financial crimes enforcement network, said it would continue working to prevent virtual currencies being used by criminals.

“But it’s also important that we step back and recognise that innovation is a very important part of our economy,” she told the hearing.

Mr Bernanke’s letter recalled a discussion in Congress as early as 1995, in which Alan Blinder, the Fed’s former vice-chairman, said that such innovations held promise if they “promote a faster, more secure and more efficient payment system”.

Other correspondence released by the committee included letters from the FBI and the Securities and Exchange Commission. All the government agencies took their cue from US Treasury guidance early this year, which said virtual currencies would be acceptable if businesses trading them were regulated.

The DoJ said the FBI’s approach was guided “by a recognition that online payment systems, both centralised and decentralised, offer legitimate financial services”.

The Department of Homeland Security took a tougher line, saying in a letter dated November 12 that the ease with which criminal organisations could exploit virtual currencies made its “aggressive posture” necessary.

Tom Carper, the Senate committee’s chairman, has called for government policy to adapt to the challenges of digital currencies, saying that “rather than play ‘whack-a-mole’ with the latest website, currency, or other method criminals are using . . . we need to develop thoughtful, nimble and sensible federal policies that protect the public without stifling innovation and economic growth”.

——————————————-

Letter in response to this article:

Bitcoin’s bottom line is a doubtful holder of value / From Mr Thomas Bower

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments