The vice governor said regulations have not kept pace with the growth of the industry.
Speaking on cryptocurrencies at the Society for Worldwide Interbank Financial Telecommunication on Wednesday, Deputy Governor for Financial Stability at the Bank of England Jon Cunliffe urged regulators to act quickly and implement measures to contain the risks posed by the market, as more and more investors get involved.
In a speech, Cunliffe attributed the potential financial instability associated with cryptocurrencies to their volatility and lack of support. The deputy governor referred to the 2008 financial crisis to explain that the cryptocurrency markets (currently with a market capitalization of around $ 2.3 trillion) did not necessarily require a huge stake in the financial sector. to raise concerns about financial stability.
“The risks to financial stability are relatively small right now, but they could grow very quickly if, as I expect, this sector continues to grow and expand at a sustained pace. The magnitude of these risks will largely depend on their nature and the speed of the response of regulatory and supervisory authorities ”, he explained.
According to Cunliffe, cryptocurrencies are mainly used for speculative investments due to the unpredictability of their value. The bank’s executive also observed that the volatile nature of crypto assets makes them unsuitable vehicles for making payments except for criminal purposes. Conversely, few in the UK crypto community are moving away from cryptos, with most even considering investing more in it.
“Attitudes towards non-backed crypto assets seem to be changing, however: in the UK, holders are less likely to say they see them as a bet, and more to see them as an alternative or a supplement to conventional investments. About half of current holders say they will invest more ”, can we read in the speech.
Cunliffe, who also chairs an internal CBDC unit within the bank, noted that the link between cryptocurrencies and mainstream financial institutions is growing stronger, with private funds and banks increasingly involved.
In the past, the vice-governor argued that the Bank of England should implement a publicly issued digital currency to help citizens meet the daily demands of life. Last month, the British central bank confirmed that it had worked with third parties, including PayPal, Monzo, Visa and ConsenSys, to create a CBDC.
These latest views of the Bank of England add to warning launched by the IMF on October 1, when the international body warned of possible financial instability. In the published article, the authors argued that aside from the risks to consumer protection, cryptocurrencies also make it more difficult for central banks to execute fiscal policies.
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