Every time Federal Reserve Chairman Ben Bernanke opens his mouth, the markets move. But few could have guessed that in an offhand remark he would add legitimacy to the Bitcoin, the virtual currency that competes with the American dollar as a reserve currency and an international trading medium.
Yet that is what he did when he held out a friendly hand to the notion of fantasy currencies in a letter to the Senate Committee on Homeland Security and Government Affairs. Understandably, this improbable endorsement from the guardian of the mighty dollar sent the value of the Bitcoin soaring.
Until recently, the Bitcoin was seen as a novel, experimental, somewhat piratical cyberspace Monopoly money that has proved useful in moving money around the world without the hampering and costly help of banks, which slow things down, waste days while the cash lingers in limbo, and take a hefty slice of every transaction. Bitcoin’s headiest moment was as the currency of choice of the Deepnet black market website Silk Road, which sold everything from crack cocaine to child porn, and was closed down by the FBI last month.
Bernanke sees far beyond the illicit uses of virtual currencies as a means of paying for contraband or shuffling hot money around without being traced. He believes they could become an ingenious means whereby the globalized market in legitimate goods and services can work more efficiently without the dead hand of the banks.
The Fed chairman told the Senate Committee members, who are anxious that something outside the control of Congress will be used as a currency for criminals and terrorists, to think before consigning Bitcoin and similar monetary confections to oblivion. Forget money-laundering, he wrote, “there are also areas where [virtual currencies] may hold long-term promise.”