The BoE Governor Mark Carney spoke at the Scottish Economics Conference about the impact of developments in money and payments technologies, how BoE is helping to manage the related potential risks, and how well crypto currencies fulfil the roles of money. He also examined the need to regulate crypto currencies or crypto-assets.
According to the BoE Governor, the most fundamental reason to be skeptical about the longer term value of crypto currencies is that it is not clear the extent to which they will ever become effective media of exchange. Even though their prospects of replacing fiat money are tenuous at best, crypto currencies are of growing interest to policymakers, many of whom prefer to term them crypto-assets expressly because they are not true currencies. At present, crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions. The Financial Policy Committee of BoE is considering the risks posed to UK financial stability. Moreover, internationally, FSB will report to the G20 in Argentina later this month on the financial stability implications of crypto-assets. He added that “At present, in my view, crypto-assets do not appear to pose material risks to financial stability.”
Authorities must decide whether to isolate, regulate, or integrate crypto-assets and their associated activities. A few jurisdictions have banned crypto-assets outright. Some regulators have sealed off crypto-assets from the core of the financial system to curtail risk of contagion. Most prominently, China—which had been one of the most active crypto-asset markets—recently banned exchanges, financial institutions and payment processors from handling them. If widely adopted, however, isolation risks foregoing potentially major opportunities from the development of the underlying payments technologies. A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system. He said that “The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system” and “holding crypto-asset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach.” He concluded that bringing crypto-assets onto a level regulatory playing field could catalyze private innovation to create a more resilient, effective payments system.
Related Link: Speech (PDF)