Overseers of the U.S. financial system are falling behind in rules governing the emerging market for cryptocurrencies like bitcoin and Facebook's (FB) - Get Report proposed Libra, a top U.S. lawmaker told Federal Reserve Chairman Jerome Powell on Wednesday.
Representative Maxine Waters, a California Democrat who heads the House Financial Services Committee, told Powell during a hearing in Washington that "our current system of regulation lacks adequate coordination, safeguards and attention to cryptocurrency."
Facebook's proposal for a new digital currency, which could serve as a form of payment for users on the social-media network, "raises serious privacy, trading, national-security and monetary-policy concerns for consumers and investors, the U.S. economy and the global economy," Waters said.
The exchange came as Powell appeared on Capitol Hill for his semiannual testimony on monetary policy, which the Federal Reserve manages alongside its duties supervising the nation's biggest banks, including big U.S. firms like JPMorgan Chase (JPM) - Get Report and Goldman Sachs (GS) - Get Report .
The Wall Street firms, which dominate markets in stocks, bonds, commodities and foreign exchange, have largely steered clear of trading cryptocurrencies, at least partly because of a lack of clear rules from U.S. agencies.
It was Powell's first hearing with U.S. lawmakers since Facebook said in a June 18 press release that it planned to introduce a new digital currency called Libra, which will be available as a form of payment "to almost anyone with a smartphone, as easily and instantly as you might send a text message, and at low to no cost."
Last week, Waters and other Democrats on the House Financial Services Committee sent a letter to Facebook CEO Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg asking for the social network to "cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action."
Waters told Powell she's worried that Facebook's new offering "may ultimately be intended to establish a parallel banking and monetary-policy system to rival the dollar."
"The Fed should be a leader on this issue and should not take a wait-and-see approach," Waters said.
Powell said during the hearing that he agrees the dollar is the world's reserve currency, and that such a status underpins the U.S. government's ability to borrow money cheaply -- via sales of Treasury bonds -- to fund a national debt that has ballooned in recent years to about $22 trillion.
Powell said regulators met with Facebook executives prior to the announcement, and that the Federal Reserve and other U.S. agencies have set up "working groups" to evaluate the issue.
"Libra raises many serious concerns," Powell said.
But, he added, "the process of addressing these concerns should be a patient and careful one."
Unlike the dollar, the value of cryptocurrencies like bitcoin isn't directly governed by the U.S. central bank or subject to the political whims that often buffets federal finances -- a factor that makes them more attractive to many of their biggest adherents.
Yet in just the past 12 months, investments in cryptocurrency-related assets have roughly tripled to about $14.4 billion, according to industry tracker Crypto Fund Research.
And while U.S. regulators have been slow to assemble a coordinated agenda for regulating cryptocurrencies, some states have pushed forward with their own licensing systems.