Is Bitcoin a threat to the US Dollar? Philadelphia Federal Reserve President Charles Plosser thinks not, at least for now. As Mr. Plosser was drawing attention to Bitoin in comments Tuesday, another major bank, Wells Fargo & Co (NYSE:WFC), convened a small group of finance executives and regulators to begin to establish “rules of engagement” for the virtual currency. This comes on the heels of the US Department of Justice, Securities Exchange Commission and Federal Reserve all providing the once radical currency alternative institutional credibility, which was followed in December by another major Wall Street institution, Bank of America Merrill Lynch, covering the virtual currency like a stock and setting a price target of $1,300.
This leaves the question: why is a currency that could damage the US dollar being given such institutional attention?
In a speech Tuesday to the 13th Annual Economic Outlook at La Salle University, Mr. Plosser said Bitcoin poses little threat to the dollar, noting that “it is just another payment system.” Deviating from his prepared remarks, Mr. Plosser said “I have nothing against Bitcoin” but adds, “it will be a long time before bitcoin replaces the dollar.”
The comment that “it will be a long time before” reflects the notion that at some point Plosser thinks Bitcoin might replace the dollar, which itself might be unnerving to US dollar stalwarts. If one examines public comments from official sources in Washington DC and on Wall Street, however, it becomes apparent that Bitcoin is now receiving unusual attention from establishment corridors.
Unusual institutional interest in once renegade currency alternative
This past November 17, the DoJ, SEC and Federal Reserve all made statements in unison that were positive towards Bitcoin. The DoJ in particular gave the currency credibility by making the statement that Bitcoin can be a “legal means of exchange.” One month after these government statements, Bank of America Merrill Lynch lent its institutional credibility to the virtual payment system, when in a report the bank said Bitcoin may “emerge as a serious competitor” to cash and in e-commerce and digital money transfers. Citing one of many benefits as the tracking ability of the digital currency, the report says “[The] fact that all Bitcoin transactions are publicly available and that every Bitcoin has a unique transaction history that cannot be altered may ultimately limit its use in the black market/underworld.” When a major bank covers a stock it typically assumes a degree of institutional acceptance.
When considering the risks of Bitcoin, the Bank of America Corp (NYSE:BAC) report notes that regulation, among other issues, is a key concern.
Tuesday meeting discusses groundwork for regulation of Bitcoin
Large banks have been hesitant to offer services to virtual currency start-ups, according to a report. One goal of the Wells Fargo summit is to pave the way for “rules of engagement” with the virtual currency and reduce “regulatory uncertainty.” Wells Fargo is assisting with anti-money laundering strategy, which will presumably center on the tracking ability of the currency. The goal of Wells Fargo & Co (NYSE:WFC) initiative is to legitimize the virtual currency through proper regulation so it can offer banking arrangements to virtual currency entrepreneurs. The public-private group meeting, with more than a dozen attendees according to one report, took place in San Francisco on Tuesday to debate the issues and lay the groundwork for rules and regulation.