Crypto not yet a financial stability risk, says Bank of England

LONDON – Cryptocurrencies are not yet big enough to pose a systemic risk to financial stability, Bank of England Deputy Governor Jon Cunliffe said on Wednesday.

“The speculative boom in crypto is very noticeable, but I don’t think it has crossed the line to risk financial stability,” said CNBC’s Cunliffe Joumanna Berceche in an exclusive interview.

Bitcoin and other digital currencies skyrocketed earlier in the year and briefly became a $ 2.5 trillion market. Bitcoin backers claimed that it could offer alternative store of value as savers struggle to find returns due to extremely low interest rates.

However, cryptocurrencies are very volatile and the market has lost more than $ 1 trillion in value since May. Bitcoin fell from a record high of nearly $ 65,000 in April to around $ 32,500 on Wednesday.

Regulators are increasingly sounding the alarm about crypto. China in particular has tried to crack down on the industry with a number of measures that have weighed on investor sentiment in recent weeks.

Meanwhile, Binance, the world’s largest crypto exchange, was banned from operating in the UK last month by the Financial Conduct Authority. Binance was one of many exchanges that failed to register with the regulator for failing to meet anti-money laundering requirements.

Cunliffe said that for the time being, crypto speculation was mostly limited to retail investors, and reiterated the central bank’s position that people who invest in digital assets should be prepared to lose all of their money.

“There are investor protection issues here. These are highly speculative assets,” he said. “But they’re not big enough to pose a risk to financial stability, and they’re not deeply tied to the existing financial system.”

“If we started to see these connections develop, if we started to shift more from retail to wholesale and see the financial sector more exposed, then I think maybe you would start with that in mind, thinking about risks, ”he added.

The Bank of England official added that a distinction should be made between speculative crypto assets such as Bitcoin and so-called “stablecoins” backed by existing financial assets.

Tether, for example, is the world’s largest stablecoin with tokens worth more than $ 60 billion in circulation. It is said to be backed 1: 1 by US dollars to keep it stable, but Tether has sparked controversy over concerns that it does not have enough reserves to justify its dollar peg.

Cunliffe said he believed stablecoins should come under government supervision.

“I think the international community needs to at least develop standards to actually differentiate, but also have regulatory standards for this type of product,” he said.

It is because several central banks around the world – including the Bank of England – are researching their own digital currencies in response to dwindling cash use and growing interest in cryptocurrencies.

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