a white house correspondent and national journal correspondent preview the week ahead in washington. irs taxpayer advocate nina olson will discuss irs reform, tax law, and how to resolve tax problems with the irs. be sure to watch "washington journal" live at 7:00 eastern monday morning. join the discussion. >> next, a house financial services subcommittee hearing on the use of virtual currency. witnesses were asked about some of the benefits and the potential security risks. this is just over one hour. >> the committee will come to

order. without objection, the chair is authorized to declare a recess at any time, and all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. 's hearing is entitled "the future of money, digital currency.": i now recognize myself for five minutes to give an opening statement. today we will discuss the future of money, and how digital currency may feature in it. when discussing the future of money, it is pertinent to have a firm understanding of its defining characteristics and history. economists define money as anything that acts as a store of value, a unit of account, and a medium of exchange. various objects have been used as money, such as seashells, giant stone tablets, and cigarettes in prisoner of war camps. rice,ities such as furs, whiskey, tobacco and corresponding warehouse receipts circulated as money on the

american continent in the colonial period. prior to american independence, americans imported gold and silver coins from european countries to use in trade, and colonies issued their own specie before they and the continental congress experimented with paper money. even the u.s. dollar has evolved since it was declared the standard unit of currency with the passage of the coinage act in 1792. it has undergone changes in dimension, design, denomination, issuer and backing, notably with the implementation and subsequent abandonment of the gold standard. in recent decades, money has been electronically stored in bank deposits and transferred with credit cards, mobile phones and the internet. cryptocurrency, however, was designed to be something different. cryptocurrency allows users to potentially store value in unlinked -- unlinked from fiat currency on a decentralized transactnd securely

directly from person to person across a peer-to-peer network of computers apart from a commercial or central bank. the central question before us today is this. are digital currencies simply a new way to hold and transfer value that will have a limited impact and niche appeal, or will a derivative of it have a far-reaching, transformative effect that will change our economy forever? cryptocurrency has existed for a decade, since the appearance of bit coin in 2009. it has flown under the radar for most of its history. for years after its creation, it was worth little and had few users, garnering sparse mainstream media attention. however, media and consumers have been taking out with the stark rise in value of 2017. bitcoin grabbed headlines reaching a valuation of around 20,000 u.s. dollars last december. also reported, controversies such as bitcoin's involvement in purchases in the online black

market, the silk road, donations funding wikileaks. the theft of hundreds of thousands of bit coin from the exchange mt. gox, and reports that hackers stole $1.6 billion in cryptocurrency over the last seven years. congress must pay close attention to development in this space. the capital markets subcommittee held a meeting examining cryptocurrency and initial coin offering markets in march of this year, and the terrorism and illicit finance subcommittee held a hearing to discuss illicit use of virtual currency and the law enforcement response last month. as chairman of the monetary policy and trade subcommittee, i am particularly interested in any impact digital security may have on monetary policy and the international financial system. we will discuss its use, both in the united states and abroad. thus far, some countries like vietnam and china have banned or restricted it altogether. others, such as switzerland and malta, have fostered it with a

mostly hands-off approach and regulatory guidance. others have adopted it, including tunisia and ecuador, by issuing their own central bank digital currencies. how ought the united states government approach this new technology is of great importance. some believe, as former fed chairman ben bernanke highlighted in a 2013 letter to congress, that digital currency innovations "may hold long-term promise, particularly if the innovations promote a faster, more efficient payment system." some suggested cryptocurrency might be a catalyst for the elimination of physical currency. the foundation for a move to a purely cashless society. arers say cryptocurrencies not suitable replacements for coins and banknotes, such as a european central bank board theer, and the chair of market committee, jacqueline lowe. in a joint article entitled

"bitcoin not the answer to a cashless society," called cryptocurrency "something of a mirage." cryptocurrency has attracted advocates, critics, skeptics, entrepreneurs and attention from media, government agencies and law enforcement. today there are well over 1000 withrent cryptocurrencies various characteristics, together comprising over $250 billion of total market capitalization. will cryptocurrency be the future of money? are they in a bubble that will burst, or even just a passing fad? these are the sorts of questions we will attempt to address today with our witnesses. mr.chernow recognizes foster -- chair now recognizes mr. foster for five minutes for an opening statement. >> thank you, mr. chairman, and thank you to our witnesses. i will be brief, because i am very interested in this topic and have been for a while. i look forward to the testimony

of witnesses, and hope to hear about currencies that are not only pure crypto, but potentially digital fiat currencies, most significantly. i'm concerned that if a significant central bank could issue a digital currency that it would have the potential to supplant the united states dollar for many transactions, even as the reserve currency around the world. despite reports that they are exploring it, countries like russia or venezuela are not really credible economies that could issue fiat currencies that would supplant the dollar. that if, however, the ecb were to issue digital euros, i think the entire world would rapidly adopt that for many digital transactions, which would have benefits to consumers and a number of risks associated with that as well. if there is really a credible threat that a digital foreign currency would supplant the dollar, we have to be prepared to respond to that threat.

i look forward to hearing from witnesses on the economic feasibility of another currency supplanting the dollar, and whether digitalization could be a catalyst in such a transition. i also look forward to any thoughts witnesses might have on some of the decision points that have to be made when you decide to create, for example, a fiat currency. it could be traceable or not, or could be traceable only with a court order. whether or not trades could be asted, in the same sense credit card purchase could be broken if you convince some entity the transaction was fraudulent, and who makes that call, under what circumstances. these are what i see are the important decisions that cannot be evaded when we design a digital currency. and so, the issue of anonymity is really crucial.

at the heart of this, as well is what sort of authentication a person will have to present to transact anything. so i look forward to this hearing very much, and yield back. >> the chair recognizes for the remainder of the time mr. sherman for an opening statement, two and a half minutes. >> thank you. clocked chain is -- block chain is a good technology, but it can be used to transfer sovereign currency. there is nothing that can be done with cryptocurrency that cannot be done with sovereign currency that is meritorious and helpful to society. the role of the u.s. dollar in the international financial system is a critical component of u.s. power. iranrought -- it brought to the negotiating table. we argue about whether we got a good enough deal or not in the jcpoa, we would have nothing if

not for the role of the dollar. we should prohibit u.s. persons from buying or mining cryptocurrencies. mining alone uses electricity which takes away from other needs and/or adds to the carbon footprint. as a medium of exchange, cryptocurrency accomplishes nothing except facilitating narcotics trafficking, terrorism, and tax evasion. some of its supporters delight if you canat disempower the u.s. government from being able to prevent terrorism, narcotics trafficking, and tax evasion, you have somehow struck a blow for liberty. that is reason enough to ban it. but its role as an investment is at least as bad. we have certain animal spirits in our culture, a willingness to take a risk, to place a bet. this can be harnessed by gambling casinos, which at least pay very high local taxes and

created the city of las vegas out of a desert. we can better yet harnessed those animal spirits to get people to invest in risky stocks, startup enterprises, and provide the technologies and jobs of the future. or we can see those animal spirits spent doing nothing but helping create a market for tax andders, narco terrorists, others who find that the u.s. dollar is not to their liking. at a very minimum, we need investor protection if we are going to have people invest in cryptocurrencies. memoranda,ring crypto registrations would be considered outright fraud and reason for incarceration if they by somebody selling stocks, bonds, or any other investment. finally, there is the money we make as a country because we are the reserve currency, because we

can issue a greenback that does not yield interest, there are people who are alive today because of the profits the u.s. government makes on that, whether it be to fund defense or medical research. all that gets diminished with cryptocurrency. i yield back. >> the gentleman's time has expired. today we welcome the testimony of dr. rodney garratt of the university of california, santa barbara. he has served as a technical advisor for international settlements, a research advisor to the bank of england, and is a former vice president of the federal reserve bank of new york. during his time at the federal reserve bank of new york, he co-led the virtual currency working group for the federal reserve system. after leading the federal reserve bank, he consulted for payments can do and r3 on project jasper, a proof of concept for a wholesale interbank payment system.

mr. garratt received his phd from cornell. dr. norbert michel, of the heritage foundation, where he studies and writes about financial markets, cryptocurrency and financial policy. before rejoining heritage, michel was a tenured professor at nicholls state university's college of business, teaching finance, economics and statistics. he has a doctoral degree in economics from the university of new orleans. is professor of economics at cornell university, also a senior fellow at the brookings institution, where he holds the new century chair in international trade and economics, and a research associate at the national bureau of economic research. he's a former head of the imf's china division. his extensive publication record includes top academic journals.

he has co-authored an edited numerous books on financial regulation and on china and india. finally, mr. alex pollock, distinguished fellow with the r street institute, providing thought and policy leadership on financial systems, cycles of booms and busts, financial crises, risks and uncertainty, central banking and policy and finance. alex joined r. street from the american enterprise institute, where he was a resident fellow from 2004 to 2015. previously he was president and ceo of the federal home loan bank of chicago from 1991 to 2004. alex received a masters in philosophy from the university of chicago and a masters in public administration degree from princeton university. each of you will be recognized for five minutes to give an oral presentation of your testimony. without objection, each of your written statements will be made part of the record. dr. rodney garratt, you are

recognized for five minutes. you can just push the button to turn on your mic. >> thank you, chair, ranking member and members of the subcommittee. the convenience of electronic transfers has led to a decline in the use of cash, particularly true in countries where systems are more advanced. sweden's mobile payment system has been adopted by over 60% of the population, and cash use in transactions has fallen to 2% use by value. countries around the world are releasing faster payment systems, including the recently launched system in the united states. at the same time, private mobile platforms continue to improve convenience and speed of person-to-person retail payments by leveraging conventional financial market infrastructures. it seems likely the use of cash will continue to fall, and it is worth noting that there's a

tipping point that even if consumers seek to use cash, businesses and banks will not want to use it. what happens then? one possibility, people will be content to transact primarily in commercial bank deposits and things will be business as usual with a much smaller cash component to the monetary base. another possibility is people will demand direct access to some form of digital, central bank issued money as a replacement for cash. the third possibility, people will turn to privately issued cryptocurrencies like bitcoin. these options are not mutually exclusive, nor are they independent. the adoption rate of bitcoin will depend not only on its performance as a money but on alternative forms the central bank provides. if consumers feel they have inadequate access to a cash like medium of exchange, they may be more inclined to turn to alternatives. on the other hand, if the central bank provides money to the public with citizen -- sufficient cash like properties, perhaps those will appease those who missed cash.

central banks are evaluating numerous options. not just a shift away from cash, but leading to the enhancement of financial market infrastructures. consider the use of central bank cryptocurrencies in wholesale systems only. these applications are driven by efficiency and have minimal monetary policy implications. i will focus on the merits of a central bank issued cryptocurrency that can be used for person-to-person and retail transactions. a retail central bank cryptocurrency could transact like bitcoin. however, instead of a fixed money supply rule, the federal reserve would control the creation and destruction of these coins. crucially, they would be one-to-one convertibility with cash and reserves, and a retail bank cryptocurrency would not suffer from a high price volatility that undermines bitcoin's usefulness. the fed could also choose to

implement cryptocurrency on a permission block chain, meeting transaction validation code, be performed by vetted actors who are accountable. proposals to increase access to digital central bank money have been made before. nobel laureate james tobin proposed giving the public access to deposit reserve accounts a central banks over three decades ago. a number of things have changed since this proposal. as i mentioned, the use of cash has declined, a major financial crisis may have changed some attitudes towards commercial bank deposits, and technological advancements offer the potential to issue central bank money in a new way. i offer two examples. first, the peer-to-peer aspect of cryptocurrencies could allow digital banks to provide money with anonymity similar to that of cash. whether the central bank would want to do this is a competent issue, requiring balancing legitimate demands for privacy against concerns of tax evasion

and other criminal activities. second there is the potential to improve upon cash by creating what advocates call programmable money. programmable money allows trading partners to hardwire the terms and conditions of trades into their transactions, so they may be executed upon fulfillment of these conditions without relying on third parties. this is particularly useful for transactions that span multiple legal jurisdictions. any decision to implement a retail oriented central banker concurrency would have to balance --cryptocurrency balance benefits against risk. access to central bank money could distant immediate banks, but it is -- this intermediate banks, butmediate it could also foster competition. d byrisk could be lessene making it more like cash, less like bank deposits. thank you. >> dr. norbert michel, you are now recognized for five minutes. >> chairman, members of the

committee, thank you for the opportunity to testify today. my name is norbert michel, director of the center for data analysis at the heritage foundation. the views i express today are my own.they should not be construed as representing any official position of the heritage foundation. cryptocurrencies have rapidly expanded since the introduction of bitcoin in 2008, and their underlying technology, a distributed database that allows digital assets to be transferred without a third-party intermediary, holds the potential to transform the financial industry. this innovation should be fostered, not smothered. my remarks today will provide four specific points related to the use of crypto currency, cash and other alternative forms of money. first, electronic means of payment have become more widespread as technology has changed, but paper currency, cash, is still a widely used form of payment. beenemise of cash has

widely and suddenly predicted since at least the 1970's, yet it remains the preferred method of payment for many people. federal reserve reports show cash is still the most frequently used form of payment in the u.s., and remains the leading payment instrument for expenditure categories like person-to-person gift transfers, food and personal care supplies, and entertainment and transportation expenditures. as the charts in my written testimony show, both the volume and value of currency in circulation, in denominations including all the way from one dollar to $100 bills, have steadily increased since the 1990's. retail establishments that prohibit customers from using cash, as was recently reported in the "washington post," do so at their own peril. this threat of consumers using an alternative form of payment, possibly at an alternative place of business, is exactly as it should be.

competitive processes should take place so businesses and consumers can discover the best means of payment. the fact cryptocurrency is a new option for making payments, in its infant stages, should be embraced. that brings me to my second point, that the federal government should not step in and tilt the playing field. it should treat cryptocurrency and all other forms of money neutrally. that means it should not bestow any particular legal advantage on any particular alternative form of money, and it should remove all legal barriers to using alternative forms of money. removing capital gains taxes from purchases with alternative currencies, including cryptocurrencies and foreign currencies, would be a major step toward leveling the playing field between alternative forms of payment. to further level the playing field, congress should consider allowing the u.s. postal service and other agencies to accept these alternatives. my third point, these

competitive forces are the forces that push entrepreneurs to innovate and improve products specifically to satisfy the customers. they also expose weaknesses and inefficiencies in existing products. the same competitive forces can and should be used to improve money. the federal government's partial monopoly on money limits the extent to which competitive processes can strengthen money, and exposes our money to the mistakes of a single government entity. nothing can provide as powerful a check against the federal debasement of money as the threat of competition from viable alternative forms of payment. my final point, centralizing crypto currencies within any government agency makes little sense. proposes benefits because of its decentralized nature. centralizing the technology in a notral bank offers

particular advantage over a traditional electronic database. furthermore, congress and the administration should do all they possibly can to no ensure t our central bank never offers retail bank accounts to the public, whether via a central bank-backed crypto currency or a more traditional form of money. implementing that policy would give the federal government a complete monopoly of money, and effectively nationalize all private credit markets. no private entity would be able to compete with the federal government for funds. even a staunch advocate for phasing out cash and forcing people to use only one type of digital money admits the biggest threat to the value of currency is often the government itself. that quote is frankly an understatement. giving the federal government the power to directly take money from its citizens with a few computer keystrokes in the name of some vague goal of stabilizing the economy simply amounts to the death of economic freedom, a terrible idea, and it's our duty to protect americans from those two radical -- tyrannical acts. thank you. >> dr. prasad, you are

recognized for five minutes. >> thank you for the opportunity to testify in front of you on the implications of digital currency broadly for the u.s. economy and financial systems. i should note that two years ago i faced an important choice one afternoon, whether to spend that afternoon buying bitcoin, which is not a trivial progress, for to work on a paper about bitcoin and digital currencies. i chose the latter, so today i have no bitcoin, but i havea paper about the implications of digital currency. it is useful to frame our discussion around three questions. one, should the government or federal reserve provide services the private sector can provide more efficiently? that is something a cryptocurrency could provide. second, what are the implications for the fed in terms of monetary policy objectives of low inflation, high employment and most important financial stability if digital currencies become widely prevalent?

third what are the implications for the u.s. role in the global financial system? as one looks at the landscape of cryptocurrencies, it is useful to keep one distinction in mind, the distinction between central bank digital currencies, which could use the same cryptographic technology as something like bitcoin, and nonofficial cryptocurrencies, essentially created in the ether out of digital assets with no backing .ds.nd them unless the us dollar. there are many proponents of moving to digital concerns of -- forms of fia currenciest, and there are legitimate targets about how that could reduce activities in the shadow economies, improve the tax base and in some ways make monetary policy more efficient, even at the lower bound. if all of us had non-interest-bearing deposit accounts with the fed, fast become technologically feasible,

and this is what professor this would make certain aspects of monetary policy much easier. we have thing about money in a broader sense. it is created by the central bank that also to a much greater extent by commercial banks. this will have a serious application for money creation in the economy. -- financiallogies technologies more broadly understand the business model of -- theyd intermediaries will play able in the financial system. the major question is what role will play. they are responsible for creating loans and therefore creating deposits. the other aspect in terms of thinking about the federal reserve'slicy -- digital currency, right now, the

reserve has no role in this. is in terms of clearing a settlement of the transactions. non-interest-bearing deposit accounts, one could well up in a scenario where the fed essentially start managing a retail payment system as well. it is not obvious that this is the ideal solution. it is worth thinking about the alternative. where thea situation systems among banks are managed through technology -- it might become feasible, what happens in a time of crisis? in normal times, it might be too significant gains. the private sector might do far more efficiently than the government the management of these systems. especially at a moment of crisis, it becomes really important. if you think about central banks like sweden, they are thinking

about introducing a digital version of the currency. the objective in mind has not been -- they want to reduce innovation by providing a backstop to the payment system to make sure it is not all in the private sector. concerns related to regulatory arbitrage and capital flows. this could be facilitated and improve efficiency but also essentially make underground activities easier to execute. finally, on the issue of the currency, ireserve think it is possible that if other countries that have their currencies in digital form, you could have this shifting -- what preserves the u.s. dollar is the argument that the global -- heaven is not just

this requires less institutions that are pretty strong. long as the u.s. dollar and insecure, it will be secure for now. hearing imposes really interesting questions. this will require some speculation and guessing. we hope that among the intriguing questions is whether a point or another crypto currency could become a successfully, privately issued fiat currency. that would mean they why the accepted. this could enforce debt and other enforceable contracts. people are not asking what the price of bitcoin but what the price is in bitcoin. from that.

demonstrates a wide variety of moneys that have been used. there have been numerous historical examples of private currencies. to my knowledge, there has never been a private fiat currency. those are reserved for the power of governments. you might have carried notes in those days. example, all such notes were backed by the loans and investments and capital of the issuing bank. they were not fiat money. the dominant historical trend in money has been to create ever more central bank monopoly of currency. this is over several centuries of development. the new ubiquitous computing power could reverse this trend. will it create more competition and currency?

i think itchel, could be a great idea but i don't think it will happen. bitcoin theorists think that it will. i think it could move in the opposite direction. that is toward even greater monopoly by the central bank through digital money. the point that it is not only our own central central other powerful banks that we might think about in this context. many central banks are interested in having their own digital currency. public, not only banks could have deposit accounts with the central bank in addition to carrying around paper currency. the appeal of this idea to central banks is natural. it would greatly increase their size, role and power with -- power.chnologies with current technologies it would be possible.

there is not much standing in the way of that. not in terms of to our financial -- in terms of pure financial technique. the federal reserve would be in direct competition with all private banks. it would be a highly advantaged government competitor. it would be regulating its competitors. that is what central bank evolution tried to develop out of. in the american banking system, there are about $12 trillion in mastic deposit. -- domestic deposits. the federal deposit account system grabbed about half of them. why not? that would be $6 billion. that would extend their balance sheet to $10 billion. if you have deposits on one side of your balance sheet, you have something else on the other side. what with the fed do with these

deposits? my friend said they would have to make investments in loans. i think we can safely predict its credit allocation would unavoidably the highly politicized. the taxpayers would be on the hook. the risk would be directly in the central bank as opposed to and somebody else. i think to have a central bank digital currency is one of the worst financial ideas of recent times. still, it is quite conceivable to think of them as a possibility. it is good for us to think about it. think if wen, i look at the money of the future, digitalization will continue. i don't think the fundamental nature of money will change, it will surely be the monopoly

issue. it might be a private currency, backed by reliable assets. i don't think it will be a private fiat currency like bitcoin. as we consider all of this and increase in the monopoly power of central banks who already have too much -- that should be avoided. thank you for allowing me to share these views. >> thank you for your testimony. the chair recognizes himself for five minutes for questioning. let me start with this idea of quick of currency potentially supplanting or displacing u.s. federal reserve notes as the world's reserve currency. rep. barr: this is for anyone who wants to chime in. digital advent of currencies, do you think demand for u.s. federal reserve notes will decrease?

what invocations does that have for the u.s. dollar? i think if you look at why the u.s. dollar is as strong as it is and as in demand as it is, you have to look beyond the fact that we have federal reserve notes. we have an economy with strong property rights. dr. michel: we had an incredibly well-developed industrialized infrastructure here. combine those things and have a dynamic economy, the assets of that economy, including the money that is predominately used in that economy will be sought-after. what you should focus on if you want people to want our money. if you want people to want to use our money. there is a downside to being the world's reserve currency. we can continue the fiction that we can print as much as we want

and lend as much as we want. that is not a good idea. that is not the way i would think of those things. does anybody else want to comment on this? mr. pollock: the united states does have and continues to have a competitive advantage in wealth storage services. that is an advantage that arises out of social -- social infrastructure. also, a powerful government enforcing all of that. i think that will continue. and u.s.bout banknotes dollar paper currency does circulate around the world, as we know. , the electronic forms of money, certainly the wholesale markets will become more dominant despite the advantages in some situations that paper currency has like

privacy. it is difficult to see an asset that has no intrinsic value and no backing by the government having value. the initial promises of that going -- bitcoin is that it could be a medium of exchange. it is very costly to transact using bitcoins. many of the non-efficient crypto currencies that are gaining more traction are ones that are orked by fiat currencies other forms of banking. -- backing. as as getting traction medium exchange. the u.s. dollar is maintained a dominant role through u.s. institutions and trust in the federal reserve. >> let me start with a more fundamental question.

volatilityabout the of digital currency and maybe that is the principal reason why it is not the best medium of exchange right now. its very: it is -- at core, are critical currencies money? money?ocurrencies substitute as money substitutes if they are not money? is bitcoin money? purposes, we may not want to fly that way. it is defined as a commodity. dr. garratt: that is for regulatory purposes.

extent but it is not currently a very good one. the reasons have been articulated. the price is so volatile. as a medium of exchange, it is not good. if we think the prices are going to go down, i don't want to receive it. if the price goes up, i don't want to spend it. this volatility undermines. >> my time is about ready to expire. would its quality as money improve -- with the volatility -- with the volatility -- would the quality decline? >> people have to start using it for transactions. if that happens, it might start to decline. is setway that bitcoin

up has a lot to do with it on volatility. that is one critical currency -- cryptocurrencies. -- that is one cryptocurrency. >> in the press, there were estimates that 20% of all bitcoin had been lost. whatever government power central-bank issues -- if that was a representative number, it would be a profitable enterprise to be in. cash came back to be redeemed. that is in addition to the interests. that whatever --ntry started doing this starts doing this, it will be a cash cow.

do you see any problem with this analysis? >> you like to have your currency lost or put away. we used to encourage you to put in your attic. that was tremendously profitable for american express. >> there has been some concern that there would be a big, evil government and appellee taking over all banking functions. it seems it would be pretty self-limiting if there was no interest paid on these things. the average person would maintain a convenience level amount of this and not have all of their net worth and something that paid no interest. just have ae you reasonable fraction of everyone's network, it is usable for short-term transactions. then they would separately just allocate the main bulk of their investments elsewhere. i think the fed would pay

interest. dr. prasad: right now, this is not a clear proposal. we have different ways of thinking about the digital currency. the notion of deposit account is of non-interest-bearing deposit accounts. you can have these assets superseding other assets -- that is unlikely. immigrant your concern about potential ecological malfeasance, this is when paper currency when counterfeiting was a concern. one could argue that digital forms of fiat currency could reduce paper currency, there on the flipside. in most issues, there is one side and the other side. the flipside is that they would make them very vulnerable to technological hacks. this is why i think most central

banks are very concerned about moving forward aggressively with this. >> the promise of block chain is non-supply will ledger that would prevent a lot of malfeasance. i think the kind that you will forever be worried about is a business of authenticating a person who is access to move these bounces around. that remains an unsolved problem in the digital world. how you really authenticate yourself for different levels of transactions. sweden handle this issue in their proposal? do swipe fees disappear? does sweden do with the problem that if someone steals your cell phone or identity and proceeds to spend a lot of money, is there a mechanism to get your money back when a

fraudulent transaction is taken away from you and mark -- you? >> i think if you are regarding to the current system, this is a system that is run by the central bank in cooperation with private banks. these are centralized accounts. in the event that your cell phone was lost, you would have access to go to the bank, reveal your identity and get your account reinstated. or you could probably do that online. dr. garratt: sweden has issued this report where they are considering alternative technologies but those are still just proposals. among those technologies they are considering is that revalue technology. >> china adopted digital transactions for consumers. balance withcount the two big players whose name i forget. these are essentially --

everybody has a balance on that. governmentme operation behind it? is there a central-bank operation behind it? >> this on -- you can link it to your bank account. sweden is considering two options. they have a system where they have electronic deposit accounts, all of these values, digital cash onto your electronic wallet, this could be like a credit card. those are the two options in sweden being considered. this is mr. williams from texas. mr. williams: thank you for this hearing. we are in the exciting first stages of the digital currency movement. it has become apparent to many that block chain and other new technologies is the digital currencies base that offer solutions and has them all to

the financial sector that does business. we must be mindful of the impact our actions have with the free enterprise. it is important that -- cymakers i would go to discussing with the experts today. my first question is to dr. michelle. -- michel. what are the impediments to development for block chain technologies? what can congress do about them? dr. michel: the main one is capital gains tax.

this is for the u.s. dollar, that is the biggest one. otherwise, on a regulatory side, this act, we look at any money laundering laws, ensuring that nothing is treated differently. yes, it is true that criminals have used bitcoin. planesls have also used and automobiles. we should not criminalize those because criminals have used them. those components are the main barriers to more widespread adopting of these things in the u.s.. williams: my next question is for dr. gary. use commercial bank deposits for everyday transactions, number two demand access to digital central-bank excess money. thoroughly, turn to privately issued crypto currencies. tot would cause consumers

choose options two and three when option one is an existing familiar technology that is already becoming an easily convenient as a payment method? dr. garratt: i agree with what you said there. testimony,ned in my new means are constantly arising or commercial bank deposits. in those scenarios, the first scenario is probably the most likely. as cash disappears, that starts to grid problems. sweden is dealing with this. the government recently wrote an opinion piece. physical cashen believe starts to disappear and when businesses stop receiving it. but i am really talking about is that future scenario.

i am really talking about is that future scenario. the senate has to decide whether ofy want to offer some sort digital alternatives. one of those digital alternatives could be down the road, some form of crypto currency. it is offered by the central bank. the primary reason for doing that would be if you wanted to allow some type of privacy component within transactions of this currency. that is currently possible with cash. this balance is against the wrecks -- risks of criminal activity. these are the options that the central bank will ultimately face. that this iss something we should be prepared for. with all of the digital currencies out there, all of the ash with that make classic case is difficult, what is the appropriate framework for

congress to address the digital currency? dr. garratt: that is a very difficult question. rep. williams: that is why i ask it. people have the ability to issue these private currencies. they are going to exist. just like dr. michael said. one can make something illegal because it might be used for illegal purposes. what i am arguing is that i believe that the central bank does a good job at providing services. not only at the interbank level but also for small payments by the public. i think the central bank should be -- continue to prop -- provide the best possible product along those lines. that thearguing is best possible product might involve some of these new technologies. issued by the central banks to remain competitive with those payment devices.

that is opposed to some of these private currencies. -- we areess able less able to monitor and less able -- rep. barr: the chair recognizes the gentleman from gallup. -- california. >> it seems that some think tanks demand that we do things that make the federal government less able to meet its financial obligations. then they demand that we have an extensive and expensive form policy that costs over a trillion dollars. there is no way to square that unless we abolish social security and medicare. sherman: we have moved from gold from 2000 years ago two drafts and paper currency.

they symbolize the gold. the paper currency itself has value. decades, what has value is paper that represents the paper. i pay my rent with a check which represents paper dollars. as recently as the 1930's, that could be converted into gold but can no longer be. we now have an opportunity to disempower the federal government and him of that power to those hostile to it. we need a medium exchange. we need a unit of value. the witnesses have demonstrated that the dollar is much better at that for honest citizens.

crypto currencies offer unparalleled advantages to nations that the u.s. government wants to sanction for their terrorist activities. tax invaders and criminals. pollock, there seems to be a solution looking for a problem. what can an honest citizen not , a picture oflue transaction. i can be in the smallest hamlet in rural india and use my visa card. i have never had a problem paying somebody unless i didn't have the money. we have pretty efficient, mostly digital transfers of dollars every day. what is the problem we are trying to solve except for the problem that the narcotics dealers have russian mark --

have? forhe proposal being made private fiat currencies -- this strikes me as an unlikely outcome. a private fiat currency -- this -- o give optional what is the great failure? you have another call the euro. >> i have many choices. what problem do i have that they i amrying to solve unless a tax abated or a narco terrorist? >> i am not pushing the solution. to illustrate that it is a solution only to the problems of tax invaders, criminals and terrorists.

it offers an opportunity for profit by speculators speculating on a currency whose sole value is to help the aforementioned manner dwells. >> you might argue that people -- there is a quote from friedrich hike. we should allow people to own guns. in many circumstances. if the sole advantage of a particular gun is that it has a special tape on it to prevent figure prints from adhering and you would say the honest citizen who wants to hunt was to make sure that the deer can't identify the fingers of a hunter, i would say the sole benefit of that the secular tape on that gun is to facilitate criminals.

other than facilitating criminals and allowing people to place bets on the value of a criminal tool -- what does this do? what problem does it solve? can you identify one? mr. pollock: i don't know. the extent that critter currencies are used, i expect they are to some extent. so is cash. rifles are chiefly used for hunting. afles designed to not have thing or them are predominantly used for crime. rep. barr: the jacobins time has expired. the bells signal that votes have been called on the house floor. we will go to mr. hill for questioning. then we will recess and then we will return. we will reconvene for the remit

of the hearing and your questions after votes. we will ask mr. hill for his five minutes of questioning. we will ask mr. hill for his five minutes of questioning. >> i was of u.s. chamber this morning talking about the advantages of exploit how block chain can change business economics and accounting and majestic. it is a very interesting topic. they're talking about a headline that is constantly chattering about crypto currencies. when i listened to your testimony, i have -- had flashbacks to the 1830's. i am thinking about while cap ranking when we had no central bank to president jackson's did not needat we that. in every state, every business

and had issued script and currency. we had an obsolete script and currency that is a collector's guide. it is very thick. understand why this is any different. i can't imagine that anyone privately issued the currency in a be anymore excepted big picture sense. why is this not like wildcat banking? is the same. i tried to suggest that in my testimony. i said in my written testimony that i have a copy of this three dollar business bill. this active as the bank in the 1840's. i think it is the same except those currencies did have a claim on the assets of the bank

if the bank had good assets. >> thank you for that. michel, this is part of the congress, not the federal reserve system. chairman powell got the question this morning. chairman powell can decide to do crypto currencies at the fed, this would be like congress directing that we do this. tell me your views on the. i hate to venture a guess, they seem to be able to do quite a bit. >> question for you, you talked the cause of blogs and truly an innovative area, you would make some form of money or credit obsolete.

people would necessary have as big a line of credit. you are concerned about future credit creation and open market. if you think about the previous congressman's questions about what the point is of crypto currencies, there are many inefficiencies that lurk in the financial system. payments,nk about using your visa or thinking about settlement of transactions, those are painfully slow sometimes, quite expensive. these technologies provide a way of getting around those issues. this could make transactions much easier to verify and follow through. finality ofn short transactions and redone the cost. that could affect the traditional model of banking, --

we talked about alibaba in china. that could affect how the fed thinks about financial stability and the transition of monetary policy as well. remaining, since this is the monetary policy committee, i have to commend to our viewing audience and to my colleagues. on thelock's writings humphrey hawkins act, one of my personal favorite was. we celebrated today quietly as we had chairman powell testifying. i always find the goals of humphrey hawkins odd. you have full employment and price stability. i did not get to ask my question. i will let you have the last word. how has price stability than consistent with perpetual inflation? mr. pollock: it is not. that is one of the great

mysteries of the federal reserve. our stable prices. this is consistent with the announced strategy of perpetual inflation. >> because this will be a very series, we may be losing members. colleaguell on our from ohio for the last set of questions for the hearing. that is warren davidson who is now recognized for five minutes for the final question of the hearing. i assume you are relieved, you won't be waiting for us for an hour and a half or two. thank you for your expertise. beginning with the nature of currency. : part of the

stability of the u.s. dollar lies not just in the resources of the united states but in the resources of the world. the petrodollar, everyone has to settle their current account at some level. everyone uses crude oil. we have an effective monopoly on settlement. problem ofh the mercantilism involved in gold. it prevented hoarding because oil is not hoarded. i think that eventually, we may find an end. in the background of that, what creates the stability of money? in crypto currency, we use the word for everything, crypto

, this is what the sec is trying to regulate. we establish that many of these crypto commodities are effectively commodities. we are not sure that they are currencies. mr. pollock summed it up well. there is a big gap between how much this is in bitcoin. that is the question i would like the pound to explore. -- panel to explore. discuss the nature of money and crypto. what would make a crypto currency of currency -- a currency? >> if we are talking about a medium of exchange, what we have

is a substitute for currency or a substitute for money. if it is all digital, maybe we shouldn't call it currency. dr. michel: what is the medium of exchange? my hope i is that people should be allowed to use whatever medium of exchange they want to. many people think that the fed is great and the fed is fine. we should stick to the central bank that we have. that is wonderful. nobody is going to use one. if somebody comes up with something better, we should allow that to take place. you said that the government should not favor one or the other. we clearly do. we coined the money. we have the official money. we have the legal tender in the united states. how do you see migrating the path? currencyck: to be a

you have to be readily accepted in settlement payments and debts. you have to be a unit that is used to denominate contracts. that means that people in theral believe that currency will be available and accepted by other people. they have to believe that other people except that. everybody else has to believe that other people will accept that as well. creationtrange social that comes out of believe act up by sense of enforcement. -- >> this has to be the case that

you accept it comes -- from thatne with the belief down the road someone will accept it from you. there is a fixed rule for how the money increases over time. that is known and fixed. the issue of the currency will behave sponsored by and evaluate. that is a fundamental aspect that gives bitcoin value. and that process is started where people have started to believe that -- it is also -- it can be problematic. it made you have a fixed rule and you're not able to provide current in a way that might be beneficial to the economy. nearly universal liquidity is the defining characteristic. thank you so much for your time, thank you for your indulgence. >> that you for your questions

and thank you for your time back your time. i would like to thank all of our witnesses for their testimony today. i apologize for the brevity of the hearing. i think we had a lot of members with a lot of interest. we will end this hearing a little bit early. given the fact that digital currencies and crypto currencies will continue to have a greater and greater impact on our financial system and the broader economy, we will be revisited this issue and explore this topic in the future. we'll have five legislative days in which to submit additional written questions for the chair which will be afforded to the witness for the response. this will allow them to respond as properly as they are able. this hearing is adjourned.

>> as part of our year-long 50 capitals tour, the c-span bus easily made a long journey to juneau, alaska. capital of the 49th state. this weekend on c-span, but to be an american history tv, this will be to our stops across alaska. showing the states natural beauty. we will delve into the unique history and literary culture. >>