Regulators must move quickly to avert the impending risk posed by cryptocurrency assets to the financial sector, according to Jon Cunliffe, deputy governor for financial stability at the Bank of England.
As the top crypto asset, Cunliffe said that Bitcoin carries the biggest risk. He further warned that Cryptocurrency volatility- the primary concern for regulators- could bubble over to the traditional financial market.
While crypto-assets are not a threat to financial stability risk at the moment, the market is growing fast every day, and a significant part of the growth involves integration with the traditional financial system.
“So the point at which they pose a risk is getting closer. I think regulators and legislators need to think very hard about that.”
CBDCs and Stablecoins Less Risky
Privately-owned cryptocurrencies, such as Novi stablecoin issued by the recently rebranded Meta are less of a threat than open-blockchain cryptocurrencies, according to Cunliffe. As such, they currently require less scrutiny from regulators.
“There are proposals for new players who are not banks, including some of the big tech platforms and some of the social media platforms, to come into the world and issue their money. But I think that those proposals don’t yet exist at scale, so I don’t think we’re behind the curve here.”
Cunliffe further said that CBDCs and stablecoins are not as risky as cryptocurrencies since they can be fully regulated and backed by fiat currencies such as the pound to control volatility. The nature of CBDCs, Cunliffe added, makes it possible for the Bank of England to consider introducing a digital pound.
“The reason we might consider, why we’re actively exploring introducing the digital pound digital form of Bank of England cash, is that we live and the way we transact is changing all the time.”
The news comes a few days after a senior official from the European Commission said that all member states should establish a common regulatory framework for crypto assets and DeFi before the end of November 2021. Speaking during a virtual conference Mairead McGuinness EU Commissioner for financial stability added that the member states have been making headway in the overall draft that is currently under negotiation.
Currency Should be Safe for Use
Cunliffe concluded that the Bank of England will eventually prioritize the safest form of money for daily use by the general public, households, and businesses.
“That’s the question that we’ll explore in this task force between the Treasury and the Bank of England over the next year.”