Cleveland Fed researchers: Peer-to-peer lending poised for growth; Bitcoin versus the dollar
Peer-to-peer lending is poised for continued growth, say Cleveland Fed researchers
Peer-to-peer lending has been growing rapidly and is poised for continued growth, say Federal Reserve Bank of Cleveland researchers Yuliya Demyanyk and Daniel Kolliner. Matching individual borrowers with investors, peer-to-peer lending fills at least two gaps left by traditional lending sources.
First, say the researchers, peer-to-peer lending can improve access to credit for individuals who have short credit histories. Peer-to-peer lenders use income, type of employment, and even SAT scores, in addition to credit scores and histories, to assess the creditworthiness of borrowers.
Second, peer-to-peer lending allows many consumers to consolidate credit card debt and lower their interest rate more than going through traditional lenders.
Bitcoin is not currently a major competitor of the US dollar, say researchers at the Cleveland Fed
It’s perhaps too early to assess the future of bitcoin, but in terms of number of transactions, total value, and price stability, it is not currently a major competitor of the US dollar, according to Federal Reserve Bank of Cleveland vice president and economist Joseph Haubrich and intern Ashley Orr.
Bitcoins are digital representations of value, a fiat currency based on cryptography—the use of encryption to store and transfer value securely. Though bitcoins have attracted a lot of attention, they are not widely accepted at most retailers, so their transaction volume is only a fraction of that of other forms of payment. In 2011, for example, 20 billion credit card transactions were processed, while fewer than 2 million bitcoin transactions were confirmed.
Bitcoin trades simultaneously for different prices on different exchanges, and the price is highly volatile. The researchers note that the price of one bitcoin in terms of the US dollar has varied from five cents to over $1,000 since bitcoin’s creation in 2009. (As of July 2014, the price was around $650 per bitcoin.)
Another way to note the changing value of bitcoin is to look at what it will buy, say the researchers. Since 2011, the average monthly price of a gallon of gasoline has varied 69 cents in US dollars and 1.17326 bitcoin — $734.37 in terms of the current exchange rate.
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