Powerful U.S. Regulator Sees Bitcoin as a Possible “Threat” to Financial Stability

By June 22, 2016Bitcoin Business

The Financial Stability Oversight Council (FSOC), a group of U.S. regulators, warned that bitcoin and blockchain are threats to financial stability and noted they need to adapt to the changing market structure if cryptocurrency reduces the importance of traditional centralized intermediaries.

The FSOC includes the Federal Reserve , the Securities and Exchange Commission and the Treasury Department. The Council is charged with identifying risks to the financial stability of the United States, promoting market discipline, and responding to emerging risks to the stability of the financial system.

In its annual report [PDF] on the financial stability of the U.S. financial system, the group highlighted, for the first time, its concerns about digital currencies.

Bitcoin has gained favor as an alternative to currencies that central banks manage on behalf of governments since its functions as a decentralized database for transactions without governing institutions. Report Addresses Distributed Ledger

In its annual report Tuesday, the FSOC said the distributed ledger systems, like most new technologies, pose uncertainties and risks that market participants and regulators must monitor.

The report reviewed the benefits of distributed ledger systems. It noted such systems can allow market participants to manage many types of transactions without the direct participation of trusted third parties.

Proponents of distributed ledger technology say it can help to significantly improve efficiency by replacing manually intensive reconciliation processes and limit risks associated with trading, settlement, clearing, and custody services. Such systems can mitigate risk and improve resilience in financial networks.

Since distributed ledgers can be designed to be broadly accessible and verifiable, they can provide a valuable mechanism to enhance market transparency, the report noted. By removing the need for some transactions to flow through trusted third parties, the ledgers can limit concentrated risk exposures to those firms and infrastructures.In addition, by improving the accuracy and speed of settlement […]

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