Bitcoin Became a Subject of Debate at the Highest Level in Federal Reserve

Bitcoin and its potential benefits were discussed at the meeting with the Federal Advisory Council and the Board of Governors of the Federal Reserve.

Photo: Antana/Flickr

Photo: Antana/Flickr

The Federal Advisory Council (FAC), which consists of 12 reprsentatives of the banking industry and advises the Federal Reserve Board of Governors, discussed bitcoin and its advantages at the quarterly meeting on the 9th of May, reports CNN Money.

The FAC and the Board of Governors discussed banking, economic and financial stability of bitcoin. Besides, the meeting focused on the potential benefits of the virtual currency, whether it could contribute to such market innovations as the development of new markets and growth of global economic consumption.

The council stated: “Bitcoin does not present a threat to economic activity by disrupting traditional channels of commerce; rather, it could serve as a boon.”

Although the FAC doesn’t see any threat to the banking system, still, it is a threat to payment processors due to its low fees.

Security concerns were named as one of the reasons that restrain further adoption of the digital currency.

“Extreme price volatility is similar to other speculative forms of stored value, undermining Bitcoin’s credibility. […] Susceptibility to theft increases uncertainty for users seeking alternatives to traditional institution-based deposits.”

The council considers bitcoin has “room to improve” and its price volatility is “likely to diminish over time”. It was also noted that “bitcoin transactions correspond to only a fraction of today’s global fund flows”.

In general, opinions on bitcoin differed much from those recent hostile statements from international central banks on the virtual currency.

The Council added: “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 FAC noted there are certain opportunities for banks: “Should adoption accelerate, banking could participate increasingly in bitcoin fund flows, especially as multi-currency accounts proliferate and reputational concerns subside.”

Although the discussions were mostly positive, the FAC expressed some critical statements about bitcoin. The main concerns outlined at the meeting, include money supply limitations and the potential to be compromised by miners. Moreover, the Council mentioned the risk of possible shadow transactions among banks using the digital currency.

However, the discussions do not mean that Federal Reserve will change its position concerning bitcoin.

In February 2014, Janet Yellen, Federal Reserve chairwoman, said that the US central bank does not have any rights to regulate bitcoin. The statement was prompted by Senator Joe Manchin, who previously lobbied for the US government to ban bitcoin.

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