Yellen says cryptocurrencies make it harder to evade sanctions, Powell: Congress underestimates importance of crypto regulation, raising rates by a quarter point on 3/16 is reasonable

US Treasury Secretary Yellen and Federal Reserve Chairman expressed their views on Russian sanctions at public events. Yellen stated that cryptocurrencies are not a panacea for evading sanctions, while Powell reiterated the importance of regulating cryptocurrencies. He also sought to alleviate concerns about interest rate hikes, advocating for a reasonable one-percent increase in March and indicating a reluctance to add uncertainty amidst global turmoil.

Underestimating the Importance of Cryptocurrency Regulation

During his testimony before the House on 3/3 and when asked about his views on cryptocurrencies, Federal Reserve Chairman Jerome Powell expressed that Congress has long overlooked the importance of regulation regarding digital finance, including cryptocurrencies. He stated:

The cryptocurrency industry is thriving in various sectors in the United States, but there is currently no regulatory framework in place to address the use of digital currencies by terrorists or for general criminal activities, tax evasion, and the like, as it should be similar to regulations in place for railroads, phones, or the internet.

CBDC

Powell was then asked if the introduction of a Central Bank Digital Currency (CBDC) could help improve the situation mentioned above. He mentioned that the Federal Reserve is seeking public opinion on CBDC and will dedicate time, hire professionals, and more to ensure that CBDC moves in the right direction. However, the cost-benefit analysis of CBDC and whether its advantages justify significant investments remain unknown.

Regarding the question of whether the launch of CBDC would help counter issues related to cryptocurrencies, he pointed out:

The issue lies in why people would use privately issued cryptocurrencies. If it is to conceal the flow of funds, evade the law, then a compliant CBDC cannot prevent people from using cryptocurrencies. Current digital currencies lack physical backing, are not used for payments, are not a store of value, and are purely speculative tools like gold.

Considering the above issues, Powell hopes that CBDC will have a broader vision. He also understands that the Federal Reserve has a responsibility to thoroughly understand all technical and policy issues related to CBDC and will introduce CBDC when the time is right.

Interest Rate Hike Schedule

Powell emphasized avoiding making decisions that could lead to chaos in an already challenging and uncertain time. In the face of rising inflation, the Federal Reserve will proceed cautiously according to plan:

A 0.25% interest rate hike at the central bank meeting on 3/16 should be reasonable, but the Ukraine-Russia war, various country responses, economic sanctions may have altered expectations for the rate hike. In response, we will consider using policy tools to prevent permanent inflation and promote a robust and sustainable labor market.

It is worth noting that BitMEX founder Arthur Hayes has been bearish on the market in recent months. In his latest article, he pointed out:

If the Federal Reserve makes a decision to raise rates by 0.25%-0.5% in March higher than market expectations, deleveraging in the market may occur again, leading to a decline in the cryptocurrency market.

From Powell's recent statements attempting to alleviate market concerns about rate hikes, a 0.25% rate hike on 3/16 is highly likely as anticipated by the market.

Warren: Cryptocurrencies Cannot Evade Sanctions

On 3/2, Senators Elizabeth Warren, Mark Warner, Jack Reed, and Banking Committee Chairman Sherrod Brown wrote to U.S. Treasury Secretary Yellen, inquiring how the Treasury Department will ensure that cryptocurrencies are not used by Russia to evade sanctions.

During her visit to Chicago, Yellen responded that the Treasury Department will actively monitor sanction enforcement. She stated:

This is worth noting, but most participants in the crypto space are subject to constraints such as anti-money laundering, sanctions, and the cryptocurrency industry cannot completely evade sanctions.

Additionally, Yellen pointed out that due to limited trade and financial ties between the U.S. and Russia, she expects Russian sanctions to have no significant impact on the U.S. economic trajectory.