The Consumer Financial Protection Bureau (CFPB) has unparalleled powers over nearly every consumer financial product and service. Given that virtual currencies can serve as a form of electronic money, the CFPB has, predictably, decided to weigh in on this topic.
A CFPB statement this week warned people about the dangers of private digital currencies such as Bitcoin, XRP, and Dogecoin. It started perfectly reasonably, noting that:
In a nutshell, while virtual currencies offer the potential for innovation, a lot of big issues have yet to be resolved – some of which are critical. If you are interested in using or buying virtual currencies, you should be aware of the associated risks.
It went on to list several risks associated with digital currencies, such as hackers, limited investor protection, cost, and outright fraud.
Fair enough. There are certainly legitimate risks associated with using digital currencies, and potential users of these services should understand those risks.
But then the CFPB statement goes on to perpetuate one of the great myths of history:
But virtual currencies aren’t regular money. To begin with, virtual currencies are not issued or backed by the United States or any other government or central bank.
Makes you wonder how the US survived until 1913 without just one government-backed currency.
Richard Cordray, the CFPB’s Director, then piled on by adding: “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”
Sadly, this resembles what people are taught in school: the US economy was a mess until the federal government finally delivered a single (official) US currency, thus ending the “Wild West” days when US citizens used multiple currencies.
But there’s a hitch. These taught “facts” are dead wrong.
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