so they substituted the deputy mayor who was putin and i knew putin had been kgb. he came in he was the equally negative he didn't want to meet with the woman and i think he was very suspicious of women. he had no gallantry and the coldest eyes i have ever seen very big blue cold eyes and all i could think of what if you were interrogating me?

>> the committee will come to order the chairs authorized to declare recess at any time and all members will have five legislative days to submit extraneous materials to the chair for inclusion in the record. this hearing is entitled the future of money. currencies future. i recognize myself. today the future of money and how digital currency may feature in it when discussing future it is point to have a

firm of the characteristics and history to define money to restore value a unit of account. objects have been used such as seashells or giant stone tablet and the prisoner of war camps rice and whiskey and tobacco corresponding warehouse receipt circulated in the colonial period. prior to america's independence and imported gold and silver cheese and trade in those issued their own species before they in the continental congress began to ask you. but it was declared the standard currency with the coinage act of 1782 changes of dimensions and design notably with the implementation and

subsequent abandonment of the gold standard in recent decades money has been electronically stored in baked deposits and transfers with credit cards and the internet. crypto currency however was designed to be something different allows users to store value that is unlinked from fiat currency is the central question today are digital currencies anyway to hold and transfer value with a limited impact for each appeal? or a derivative of it have a far-reaching transformative effect to change our economy forever? it has existed for a decade

over the parents of tee5. in two garner the mainstream media but however media and consumers take note to the right of value with bitcoin grabbing headlines with the valuation of $20000 last december also reported with bitcoin involvement on the online black-market donations funding wikileaks or are hundreds of thousands that are being exchanged and reports that hackers of stolen $1.6 billion of crypto currency accounts over the last seven years. congress used to pay close attention the capital markets to examine that event to hold a hearing.

>> i am interested for what impact on monetary policy and international system. we will discuss its use for the united states and abroad some like vietnam and china have banned them altogether others have fostered it but mostly have a hands-off approach with regulatory guidance and others including tunisia and ecuador how should they approach this technology is of great importance what they highlighted in the letter to congress that may hold long-term problems with the innovations promoting a faster and secure payment system

somehow suggests that crypto currency is a catalyst for physical currency and the foundation is a cashless society others to the european central bank and the chair of the big four international committee in the financial times title bitcoin is not the answer to the cash flow society that the currency is a barrage. crypto currency has attracted advocates and critics and skeptics entrepreneurs and investors for attention from media and government agencies there are well over 1000 crypto currencies of various characteristics comprising over $250 billion total market capitalization is at the future of money?

is it a bubble that will burst or a passing fad? the sorts of questions we will attempt to address today with our witnesses. the chair recognizes mr. foster for five minutes for an opening statement. >> thank you mr. chairman. i will be brief because i am very interested. i look forward to the testimony of the witnesses that are not only are crypto and potentially with those currencies and i'm concerned if a significant central bank could issue a digital currency has the potential to supplant the dollar for transactions or as a reserve currency around the world and despite that. wanting more -- exploiting countries like russia is not

really the country that could support the dollar but now with digital euros i think the entire world would rapidly adopt that for digital transactions which have benefits to consumers and if there is a credible threat that a foreign currency could supplant the dollar we have be quick to respond and look forward to it -- hearing for witnesses and that could be a catalyst i also look forward to any thought the witnesses have on the decision point to be made when you decide to create a currency that could be traceable or not or only with a court order if trades

could be vested in the same sense of a credit card purchase cannot be broken if you convince them that transaction was fraudulent. these are important decisions that cannot be evaded designing the digital currency. so the issue of anonymity is crucial at the heart of this as well as what sort of authentication a person has to present. so i look forward to this hearing very much and i yield back. >> the chair is recognizing for the remainder of the time for your opening statement. >> watching is a good technology but can for

cybercurrency there is nothing that can be done with crypto currency that cannot be done without sovereign currency that is helpful to society. the scroll the critical component of u.s. power and then we argue had a so to mine alone uses electricity which takes away from other needs or adds a carbon footprint. as a medium of exchange accomplishes nothing except to facilitate narcotics trafficking and terrorism and tax evasion. so the supporters to light in that if you can disempower the

west government from being able to prevent terrorism and tax evasion you have struck a blow for liberty and that is reason enough to ban it but the role of investment is at least is as bad. we have certain animal spirits in our culture that are willing to take a risk to place a bet this could be placed by gambling casinos that pay high local taxes they can build the city out of the desert but harness those startup enterprises to provide the technologies of the future or to see those animal spirits doing nothing with the narco terrorist and others that find u.s. dollars not to their liking.

add a very minimum to need investor protection and too often or that memoranda. and not outright fraud and incarceration issued by somebody selling stocks and bonds. so with that currency with the greenback to be issued that does not yield interest there are people who are alive today and with defense or medical research. >> the gentleman time is expired look at the testimony to the chair of economics

serving as a technical advisor than the federal reserve bank of new york so he called and the virtual currency working group to be project jasper for the interbank system receiving his phd from cornell. with the center for director of data analysis with the crypto currency and monetary policy michelle was a tenured professor with those statistics to hold a doctoral degree and that senior policy

of economics at cornell. and that research associate of economic research. what those articles of collective items of poor academic journals. to have a distinguished fellow with that financial crisis and uncertainty in the politics of finance and in january 2016 from from the american enterprise institute he was a resident fellow with the

masters of public intern national degree each of you will be recognized for five minutes to give an oral presentation of your testimony doctor garrett your recognizer five. please turn on your microphone. >> thank you chairman and members of the subcommittee electronic transfers have led to a decline in the use of cash this is true in countries where systems to transfer commercial bank deposits are more advanced meetings mobile payment cash use has fallen

below 2% by value countries around the world are introducing their own cyberpayment systems including real-time claimant's cap arm in united states at the same time paypal and other private platforms continue to improve convenience and speed to leverage commercial infrastructure. is worth noting there is a tipping point but the assistant things will not want to do with that then what happens? they will do transaction and commercial deposit can be business as usual. another possibility is people will demand direct access as a replacement for cash in the third possibility they'll privately try try to issue crypto currency like bitcoin. they are not exclusive or

independent depends on only has on its performance but the digital money that the central bank provides and they could be more inclined but on the other hand was sufficient cash like properties and perhaps the subpoenas those who miss cash central banks are evaluating options for digital currencies for reading those core objectives and with those private partners and with wholesale systems only so this is driven by cost and with those policy implications will focus on the merits of a widely acceptable currency for

person-to-person and retail transactions that could be a transaction however the federal reserve would control the creation and crucially there is that convertibility and hence the retail crypto currency could not suffer from the high price volatility as bitcoin as a stored value the fed could also choose to implement crypto currency provisions change that that validation could be performed by those who are accountable for the actions. proposals to increase access to digital money has been made before nobel laureate propose giving public access over three week -- three decades

ago. technological advancements offer the potential that anonymity properties. whether or not the central bank would want to do this to require balancing legitimate demands but concerns from tax evasion there is the potential to improve upon cash what those advocates call programmable money it allows trading partners that hard-line into those transactions so they may be executed without relying on third parties this is useful for transactions this has

potential benefits against potential risk and it is possible that the risk would be mitigated to make it more like cash and less like deposits i would be happy to. >> members of the committee thank you for the opportunity to testify today from the center of the data analysis and those views that i expressed my own and should not be construed as any official position of the heritage foundation. crypto currency has rapidly expanded and the underlying technology distributed database allowing those interparty intermediary on --

intermediary. my remarks will provide four points to the crypto currency cash first to become more widespread as technology has changed but paper currency is still widely used form of payment cash has been predicted since the 70s and it remains a preferred method for many people the federal reserve shows catches the most frequently used payment u.s. to play a dominant role for small value transactions and also remains a leading payment insurer such as person-to-person transferred entertainment and transportation expenditures by written testimony shows the

volume in the value of currency in circulation and denomination from one through $100 bills dollar bills has steadily increased in the 1980s so retail establishments prohibit customers from using cash but they do so at their own peril but this danger or the threat of them using the alternative form of payment is exactly as it should be the competitive process should take place of businesses and consumers can discover the best means of payment in fact that it is a new option although in the infant stages should be embraced every three to a second point that the federal government should not step into tilt the playing field but treat the crypto currency and all other forms mutually and not bestow any type of legal advantage or alternative form of many and remove all

legal barriers to use alternative forms of money. removing capital gains taxes with crypto currency purchases that would be a major step to level the playing field between alternative forms of payment. further level the playing field allowed the u.s. postal service and other government agencies to accept these alternatives and third these competitive forces are the forces that push entrepreneur specifically to satisfy their customers and expose weaknesses and the same competitive forces can and should be used to improve many and the federal government's money limits the extent that competitive process expels money to the mistakes of a single government entity nothing can provide against that federal debasement as the

competition from viable alternative forms of payment in the final point is centralizing crypto currency makes little sense the technology promises benefits because it is decentralized in its nature with the central bank offers no particular advantage over a more traditional database. furthermore congress and administration should do all they can to ensure the central bank never offers retail bank accounts to the public whether through crypto currency or the more traditional digital form of money that would give the federal government a complete monopoly to effectively nationalize all credit markets no private entity could compete with the federal government for fun. even a staunch advocate forces people to use only one type of digital money admits the biggest threat is often the

government itself now that is an understatement given the federal government the power to directly take money from the citizens with a few keystrokes to stabilize the economy jeopardizes economic freedom it is a terrible idea congress' duty is to attack the americans from those tyrannical acts. thank you. >> doctor your recognizer five minutes. >> thank you for the opportunity to testify in front of you regarding digital currency broadly defined for the financial system. i should note i had to look at the choice to spend the afternoon buying that coin or start working on a paper about digital currency i chose the latter but today i have a bit coin they do have a paper

about the implications of digital currency. the use for the framework of the discussion should the government or the federal reserve can provide more efficiency second what are the implications for the fed with the monetary policy objectives with high employment and financial stability? if crypto currencies become widely prevalent what about the global financial system? looking at the landscape keep one distinction in mind between the central bank that could use the bank with technology and crypto currency with no backing behind them like u.s. dollar.

moving from digital forms that is a legitimate argument how to use that activity in the shadow economy with that illicit activity or to make monetary policy more efficient even where the fed cannot use interest-rate policy anymore but all of us have what is fast becoming technology lee is a -- feasible what this what was suggested this would make that voluntary policy implementation a lot easier but you think in a broader sense money is created by the central bank but also by commercial banks this is where there is a serious implication in the economy because has new financial technologies more broadly the non-bank financial

intermediaries have questions that remain what will the banks play because those are the institutions that they are responsible for creating deposits and a very important part of many that other aspect but the federal reserve digital currency what it does to the payment system but it has a very important tool for those financial transactions with the non-interest-bearing scenario where the fed starts to manage the retail payment system as well. it is often the ideal solution but better than the alternative with the retail payment system among banks

they are manage their technology which could become feasible but then what happens in a time of crisis of confidence? there can be efficient gains the efficiency and be more management of the payment systems but especially at the moment of crisis that is very important so think about the central banks freedom those things that are looking at introducing additional form of currency their objective is not to reduce innovation that provide a backstop to the payment system when not subjected to a crisis of confidence also the regulatory arbitrage is to be facilitated that would improve the efficiency but also

potentially also make underground activities easier and finally on the issue of the u.s. dollars i think it is possible if other countries where were they should be with her on trees currency that medium of exchange and shifting and what would possess the dollar as a global safe haven but it has the ability to serve as a safe haven those u.s. institutions are still pretty strong. so those will remain secure for now. >> are recognized for five minutes. >> members of the subcommittee this hearing poses interesting questions after some speculation and guessing with the intriguing questions is

whether bitcoin or another crypto currency could become a successfully privately issued fiat currency that would mean a widely accepted constantly used in payments and settlements and to have other enforceable contracts people are going around not asking the price of that coin but what is the price of this in bit coin? so just imagine the history of many demonstrates a wide variety of money used with numerous examples of private currencies but to my knowledge never a private fiat currency as a reserve from governments it is an example where state-chartered banks were common with the role of the five-dollar bill and for

example hundreds of others but also by the loans and investments and capital of the issuing bank and were not fiat money. the historical trend downward to create a central bank monopoly of currency over several centuries of development to have this computing power of the time to reverse the trend to create more currency i think it might be a good idea but i don't think it will happen but it is easier to imagine move it exactly in the opposite direction with a greater monopoly by the central bank through digital money. there was the point not only our own central bank but other powerful banks to think about in this context many indeed

are interested in their own dirt digital currency with those deposit accounts in addition to carry about the paper currency and the idea is natural to greatly increase their size and whole with current technologies that would clearly be possible the central bank with tens of millions of account there isn't much ending in the way of that in terms of pure financial technique but is it a good idea? no it wouldn't in such a scheme the federal reserve would be in direct competition with a high advantage to government competitor and regulating its competitors. that is what the central bank evolution tried to develop out of in the american banking

system with $2 trillion of domestic deposits the federal reserve federal deposit account system grabs half of them, why not? that is $6 trillion to expand then at $10 trillion. so remember if you have deposits on one side you have something else on the other so what would the fed do with this mountain of deposit it would have to make investments in loans and would become overwhelming credit allocator of the american financial system we can cease the project that would be highly politicized and that taxpayers would be on the hook for credit losses the risk is directly in the central bank as opposed to somebody else.

i think to have a central bank digital currency is one of the worst financial ideas of recent times but still it is quite conceivable to think of it as a possibility. in conclusion look at the money of the future of the digitalization will continue i don't think that fundamental nature will change and surely be the monopoly she went of the central bank. it could be a private currency backed by reliable assets that don't think it will be a private fiat currency like bitcoin. as we consider the increase of the monopoly power of central banks that already have too much it should be avoided and thank you for sharing these views.

>> thank you for your testimony the chair recognizes himself for five minutes for questioning. i will start with the idea to potentially displacing u.s. federal reserve notes as the world reserve currency. with greater use of electronic payments with digital currency to think the demand for federal reserve notes will decrease and what implications does that have for the u.s. dollar? >> if you look at why the dollar is as strong as it is and demand you have to look beyond the federal refractive of the federal but the economy was strong property rights especially relative to other countries and incredibly well developed industrialized

infrastructure and as long as you combine those things, the assets of that economy will be sought after so that is what we should focus on if you want people to use our money but there is a downside that basically we can continue the fiction and frankly that's not a good idea. that's just not the way i would think of those things. >> another way to think about that is the united states does have and continues to have a competitive advantage of wealth storage services that arises out of social infrastructure and rule of law and enforcement of contracts and a strong financial system

and of course a powerful government enforcing all of tha that, it will continue and we talk about the banknotes but the paper currency does circulate around the world but nonetheless electronic form form of money the wholesale markets are more dominant despite of the advantages and some situations privacy is what it can provide. >> it has no intrinsic value but the initial promise of bitcoin it could become the effective medium of exchange that promise has not panned out because is very costly and in fact all of the crypto karen seen that are getting more traction in fact want to

be backed by fiat currencies or other forms of banking so for example to be backed by the dollar that is traction as a medium of exchange is what this point to maintain it dominant role in the federal reserve. >> let me follow-up by posing a fundamental question. talk about the volatility maybe that is the best way of exchange or stored value but that is very core are crypto currencies money? i invite anyone to chime in on this but if not money, do they substitute and function as money substitutes?

>> on that front i would point to hayek he likes the word currency a lot more than money. is bitcoin money? for regulatory purposes remain at want to define it that way or the irs has defined it as a commodity that is necessary for regulatory purposes but to conceptualize it is to some extent but not very good one for the reasons articulated because the price is so volatile but as a medium of exchange it is in good because i don't want to receive it if the price goes down that i don't want to spend it so that volatility undermine undermines.

>> so what would its quality improve on the volatility decline based on the adoption rate is that is all that is required? >> yes people have to start using it for transactions. if that happens then the. >> adoption rate has to do with it and fit coin has also benefited from its own but that is only one currency so in general yes it does have a lot to do with it. >> my time is more than expired i recognize doctor foster for five minutes. i thank you and also to the witnesses. recently there were reports in the press of estimates of 20% of that coin was lost which strikes me to imply whatever the central bank issues that

was a representative number that would be tremendously profitable enterprise to be in if 20% of your cash never came back to be read deemed but that is in addition to the interest expense there is no interest paid so it strikes me that whatever country starts to do this to become the standard will have a permanent cash cow is there anything wrong with that analysis? >> or any issuer of currency to have that loss remember american express those checks used to be currency they encourage you to put them in your attic and save them for the future which was profitable for american express there has been a concern here but looking at overall banking functions the

average person could maintain a convenience level and not have all the net worth and so it seems like you have a reasonable traction for short-term transactions to be in the investment environment do you see anything wrong with that. >> is is not a clear proposal. but then with those concerns with those assets and then to be highly unlikely with the zero nominal interest rate.

and with that technological malfeasance. and with those different forms of fiat currency could confuse the paper currency but they are on the flipside. and makes them volatile to ask. . . . .

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