In what is likely to be her last press conference at the central bank, Yellen described the high-flying cryptocurrency as a “highly speculative asset” that "plays a very small role in the payments system" and is “not a stable store of value.”
But while Yellen is mindful that the price of bitcoin could plummet, she’s confident that such an event would only likely impact the individuals that have been heavily investing in it. The cryptocurrency is steadily becoming more mainstream now that bitcoin futures trade on a regulated exchange. However, the Fed’s chair believes that the economy is insulated from a potential crash as big banks continue to have limited exposure to the virtual currency.
“Undoubtedly there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don’t see that as creating a full blow financial stability risk,” she said. “I really don’t see any significant exposure of our core financial institutions to threats from bitcoin if its value were to fluctuate.” (See also: UK Authorities Plan Crackdown on Bitcoin.)
Yellen, who made the comments after the Federal Reserve lifted its benchmark interest rate by 25 basis points to a range between 1.25 percent and 1.50 percent, also ruled out the possibility of the Fed introducing its own digital currency. She suggested there has been some discussion on the topic, but added that it’s unlikely to happen anytime soon. (See also: Bitcoin Should Be Outlawed, Says Nobel Prize Winner Joseph Stiglitz.)
“There is a discussion going on among central bankers about the potential merits of a central bank itself adopting a digital currency, and there may even be a central banker or two around the globe that might go in that direction,” she said. “But I really want to caution that this is not something that the Federal Reserve is seriously considering at this stage."
During the press conference, Yellen was also asked whether soaring U.S. stock prices risked derailing the economy. Many financial commentators have voiced concerns in recent months that equities are overvalued, warning that widespread buying is creating a situation on par with the 1999 tech bubble.
“There’s nothing flashing red there, or possibly even orange,” she said when questioned about the current U.S. bull market. “We have in recent months characterized the general level of asset valuations as elevated. The fact that those valuations are high doesn’t mean that they are necessarily overvalued.”