Bank Governor warns on cryptocurrency risks

03 March, 2018, 00:38 | Author: Teresa Adams
  • Cryptocurrency exchanges to face regulatory clampdown, says Bank of England's Mark Carney

JP Morgan chief Jamie Dimon once branded the digital currency "a fraud" and said it was only useful to murderers, drug dealers and rogue nations like North Korea.

Digital currencies are failing as a means of exchange and demonstrate all the signs of a classic bubble, according Bank of England (BoE) Governor Mark Carney, who called for tighter regulation.

Carney, who was unable to travel to Scotland because of the adverse weather conditions across the United Kingdom, noted "the average volatility of the top 10 cryptocurrencies by market capitalisation was more than 25 times that of the USA equities market in 2017".

"In my view, holding crypto-asset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach", Carney said.

But he warned this might change unless action is taken.

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The Bank of England's Financial Policy Committee is now considering the risks posed to United Kingdom financial stability by the proliferation of virtual currencies.

Meanwhile, in China, officials are cracking down on anyone connected to trading in cryptocurrencies, which has been banned since a year ago. Meanwhile, regulators across the world have either sought to ban crypto products outright or begun to explore the risks they pose to market stability.

In February the Treasury Committee launched an inquiry into the role of digital currencies in the United Kingdom with the view to regulating the emerging asset class. They are small now but they are getting bigger. Even at their recent peak, their combined global market capitalisation was less than 1% of global GDP.

"And just prior to the global financial crisis, the notional value of credit derivative swaps was 100%".

He said financial stability risks would only rise if retail participation significantly increased or linkages with the formal financial sector grew without material improvements in market integrity, anti-money laundering standards and cyber defences.

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Carney also outlined some of the potential advantages of cryptocurrency, the underlying technologies of which he described as "exciting".

He added it could "transform everything from how people manage of their interactions with public agencies, including their tax and medical records, through to how businesses manage their supply chains".

In his speech, Carney praised the blockchain technology which underlies Bitcoin and cryptocurrency, but made every effort to put down cryptocurrency as a whole.

"If widely adopted, however, isolation risks foregoing potentially major opportunities from the development of the underlying payments technologies."
Blockchain technology could be used to make payments more flexible, efficient and reliable, for example.

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