The Fed Is Studying The Risks Of Bitcoin

The United States is studying the potential risk from online payment mechanisms like PayPal and Bitcoin, a top US Federal Reserve official told an international conference on Monday.

Some bankers have expressed worries that newer players in the online marketplace could have negative implications for the financial system.

"We have been talking... with banking organisations over the last year or two, trying more carefully to understand what the concerns are with these new payment mechanisms," Federal Reserve Vice Chair Janet Yellen said.

But she denied the widespread view that such players operate completely unregulated, saying the United States has a stronger regulatory environment than many are aware of, especially in the area of consumer protection.

"In point of fact, at least in the United States, there are regulations that apply to PayPal and other payment providers," she told the annual International Monetary Conference in China's financial hub of Shanghai.

PayPal is the online payments arm of US Internet retail giant eBay.

"But that said, this is very much on our radar screen and we are carefully trying to identify where the risks are," Yellen added.

Last month, US authorities seized the accounts of one Bitcoin digital currency exchange operator, Mutum Sigillum LCC, claiming it was functioning as an "unlicensed money service business".

Bitcoins were launched in 2009 in the wake of the global financial crisis by an anonymous programmer who wanted to create a currency independent of any central bank or financial institution.

Some officials fear the virtual currency can be used by criminals or terrorists, or could be vulnerable to hackers.

The United States last month launched a money laundering probe against a digital currency operator, Costa Rica-based Liberty Reserve, which allegedly handled huge amounts of money outside the control of national governments.

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