U.S. Federal Reserve Vice Chair Janet Yellen testifies during a Senate Banking Committee confirmation hearing on her nomination to be the next chairman of the U.S. Federal Reserve, on Capitol Hill in Washington November 14, 2013. REUTERS/Joshua Roberts Fed Chair Janet Yellen was just asked by West Virginia Senator Joe Manchin about Bitcoin.

Yesterday, Manchin sent a letter to the heads of the government's financial regulatory bodies warning of Bitcoin's potential for criminal abuse and the possibility for disrupting the economy.

Here is how Yellen responded:

"Bitcoin is a payment innovation that's taking place outside the banking industry. To the best of my knowledge there's no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the fed doesn't have authority to supervise or regulate Bitcoin in anyway."

She continued: "One concern with Bitcoin is the potential for money laundering. [FinCen] has indicated their money laundering statutes are adequate to meet enforcement needs."

Manchin asked whether U.S. was "behind the curve" among countries issuing warnings on or regulating Bitcoin:

"The Fed doesn't have authority with respect to Bitcoin," she responded. "But certainly it would be appropriate for Congress to ask questions about what the right legal structure would be for digital currencies...My understanding is Bitcoin doesn't touch [U.S.] banks."

"It's not so easy to regulate Bitcoin because there's no central issuer or network operator. This is a decentralized, global [entity]."

"We're looking at this," she concluded.