Bitcoin a threat to payment processors, not overall banking system, U.S. Federal Advisory Council says

Bitcoin a threat to payment processors, not overall banking system, U.S. Federal Advisory Council says

May 19, 2014

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The Federal Advisory Council, which consists of 12 representatives of the banking industry and advises the Board of Governors of the Federal Reserve System, has been talking about Bitcoin.

The question “Does Bitcoin pose a threat to the banking system, economic activity, or financial stability?” was asked and the main concerns were mainly about banking, economic activity and the financial stability of Bitcoin.

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The notes go over how the Council doesn’t believe Bitcoin is a threat to the banking system; however, it is a threat to payment processors given its lower fees that the industry will have to adapt to and address. The lower fees are especially attractable to merchants who usually absorb the cost.

Bitcoin “does not present a near-term threat to the banking system” although it does possess peer-to-peer utility, Bitcoin only accounts for a small fraction of global fund flows. Security concerns were outlined as one of the reasons that have hindered adoption. “Consumers are likely to use Bitcoin if they perceive its benefits – namely faster settlement and geographic flexibility – to exceed those of its alternatives.” If this were to happen we could see multi-currency accounts at traditional institutions.”

The Council did mention that Bitcoins have been used in illicit activity, but duly noted that this is only a fraction of what bitcoins are used for and the global drug trade is over a trillion dollars.

The Council saw Bitcoin as a possible “boon” for the overall economy because Bitcoin’s “global transmissibility opens new markets to merchants and service providers.”

The notes stated that Bitcoin would probably become more stable in the long-term and in order to move forward it would have to address regulatory concerns to protect consumers, address illicit activity, and it would have to have a similar regulatory outlook globally like existing payment processors.

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