Digital forms of money or cryptocurrency aren’t yet large enough to represent a foundational hazard to monetary security, Bank of England Deputy Governor Jon Cunliffe said Wednesday. The Deputy Governor said and I quote, “They are not of the size that they would cause financial stability risk, and they are not connected deeply into the standing financial system”. The Deputy Governor of the Bank of England discussed the financial stability risk that cryptocurrency may or may not incur.
John Cunliffe Explains How Cryptocurrency Doesn’t Have The Potential To Cause Financial Stability In a Country
Bitcoin and other cryptocurrencies shot up in value toward the beginning of the year, momentarily turning into a $2.5 trillion market. However, these cryptocurrencies don’t have any power to back their worth. They are profoundly unpredictable, and the market has lost more than $1 trillion since May. Bitcoin has tumbled from a record high of almost $65,000 in April to around $32,500 as of Wednesday. Regulators across the globe have been skeptical about the financial risks caused by the volatility and decentralized nature of cryptocurrency. Certain countries such as China and other South Asian and Pacific countries have been determined to crack down on the cryptocurrency system completely.
A few weeks ago in July the world’s most popular cryptocurrency exchange platform Binance was banned from the UK as it failed to register under the regulators and follow the norms of anti-money laundering. Meanwhile, the Deputy Governor of the Bank of England, Jon Cunliffe said, “the speculative boom in crypto is very noticeable but I don’t think it’s crossed the boundary into financial stability risk.”
The Bank of England’s Deputy Governor clarified that the speculations about cryptocurrency were restricted to individual investors at present. He repeated the British national bank’s position that individuals putting resources into cryptocurrency ought to be ready to lose all their cash, the perspective communicated on a few events by Andrew Bailey, the legislative leader of the Bank of England.
Jon Cunliffe, the Deputy Governor of Bank of England continues to say that, “There are issues of investor protection here; these are highly speculative assets. But they are not of this size that they would cause financial stability risk, and they are not connected deeply into the standing financial system”. He later added, “Were we to start to see these links develop, were we to start to see it move out of retail more into wholesale and see the financial sector more exposed, then I think you might start to think about risk in that sense.”
Deputy Cunliffe expressed his opinion regarding the matter to distinguish between Crypto-assets like Bitcoin should be considered different from stable coins (a new class of cryptocurrency which is subjected to lesser market volatility and is backed by reserved assets), he emphasized more on regulating the stable coins. For example, Tether is the world’s largest stable coin with more than $60 billion worth of tokens in circulation. It is meant to be backed 1:1 by U.S. dollars to maintain a stable value, according to data from CNBC.
He said, “I think the international community needs to at least be developing standards to be able to distinguish but also to have regulatory standards for that sort of product.”
Similar to many countries, the Bank of England is also motivated to experiment with the Central Bank Digital Currency (CBDC), a cryptocurrency of their own. Although, the governor of the Bank of England once called cryptocurrency dangerous saying that “they won’t last”. In June 2021, the Governor said regarding cryptocurrency regulations, “there will inevitably be elements of tough love”. Andrew Bailey said, cryptocurrencies “have no intrinsic value,” but it “doesn’t mean people don’t put value in them, because they can have extrinsic value.” The president of the European Central Bank (ECB), Christine Lagarde, agreed with him. (Data derived from Bitcoin.com)
Cryptocurrency regulators continue to opine differently while mulling over the legal framework to acquire a near-to-utopian system for crypto assets and blockchain technology.