In comments made during her confirmation hearing last week, Secretary of Treasury Janet Yellen said that transactions in cryptocurrencies, such as Bitcoin, were used “mainly for illicit financing” and suggested that lawmakers and regulators curtail their use due to terrorism concerns.
Here are the statements she made in response to a question from Sen. Maggie Hassan, who asked Yellen during her confirmation hearing on Tuesday about the dangers of terrorists using cryptocurrencies:
“You’re absolutely right that the technologies to accomplish this change over time, and we need to make sure that our methods for dealing with these matters, with terrorist financing, change along with changing technology,” Yellen said.
“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing.
“And I think we really need to examine ways in which we can curtail their use and make sure that money laundering doesn’t occur through those channels.”
ARE TERRORISTS USING BITCOIN?
Are terrorists using Bitcoin to finance their “illicit” activities? And, to what extent?
I understand the concern about money laundering, but it is doubtful that “many” cryptocurrencies are used “mainly for illicit financing”. If that is the case, then why is the Secretary of Treasury encouraging lawmakers and regulators to “curtail” their use?
Cryptocurrencies offer a PRIVATE process for digital transfer of money. Every single transaction is recorded within a decentralized tracking system. The privacy is attractive for tax and regulatory reasons.
Is tax-avoidance an issue of concern for Ms. Yellen? In her role as Secretary of Treasury, the answer is probably yes. Although, at this point, the volume of financial transactions in all cryptocurrencies likely isn’t large enough to justify excessive concern on her part.
There must be another reason. There is; and that reason encompasses territory far beyond the potential loss of tax revenue.
MS. YELLEN’S REAL REASON FOR CONCERN
The reason: lack of control.
We live in a highly regulated society. Our financial system is the epitome of stringent regulation and control. That control is evident in the process involving financial transactions and the transfer of money.
The ever-present middleman in clearing all financial transactions is the bank; ultimately the US Federal Reserve. And, as we know, Ms. Yellen is a former board chair of the Federal Reserve.
Financial transactions in Bitcoin and other cryptocurrencies are “off the grid” so to speak. That means that they are unreported and do not come under the purview of the regulators.
However, it is not realistic to think that the system will be allowed to function unimpeded on its own for long. This is especially true if the dollar volume of transactions increases in significance.
Ms. Yellen’s inference of terrorists using cryptocurrencies appears to be an attempt to justify curtailment or clampdown on financial activity that is currently not under the purview of those who are in control.
It is naive and short-sighted to think that those who claim to have regulatory authority would sit idly by without making a concerted attempt to intervene in areas where activity is perceived as a threat to their own (the regulators) interests.