Bitcoin a threat to financial stability, says US Fed official

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File photo of bitcoin in Washington. A senior Fed official warned bitcoin may pose a threat to financial stability after racing past US$11,000 this week. Photo: AFP

Published: 7:00am, 1 Dec 2017Updated: 7:05am, 1 Dec 2017

Digital currencies like bitcoin could pose a threat to financial stability as they gain wider use, a top Federal Reserve banking oversight official said on Thursday.

The remarks from newly-installed Fed Vice Chairman for Supervision Randal Quarles came as bitcoin took a vertiginous dive on Thursday after skyrocketing earlier in the week to more than 10 times its value at the start of the year.

Bitcoin is increasingly being embraced by Wall Street, with plans by mainstream markets to offer trading in the currency’s futures, which is drawing interest and some concern from regulators.

Quarles raised concerns about how cryptocurrencies would behave in a crisis. In a speech on the payments system he said that in times of crisis, demand for liquidity among bank depositors often shoots up, putting major financial institutions under strain.

But it is not clear how digital currencies would perform in similar situations, he cautioned.

Federal Reserve vice-chairman Randal Quarles, who warned bitcoin may pose a threat to financial stability. Photo: Reuters

Decentralised virtual currencies like bitcoin operate as a payments system with no central bank and are exchanged using encryption.