Bank of England labels cryptocurrencies a “lottery”
The Bank of England has launched an attack on cryptocurrencies, arguing that they fail in their most basic role as money, and insisting that they need to be more tightly regulated in order to prevent the money laundering and terrorist funding their anonymous nature facilitates.
Speaking at the Scottish Economics Conference in Edinburgh on Friday via live video link, Bank of England governor Mark Carney said:“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system.”
“Being part of the financial system brings enormous privileges, but with them great responsibilities. In this spirit, the EU and the US are requiring crypto exchanges to meet the same anti-money laundering and counter the financing of terrorism standards as other financial institutions.
“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.”
Cryptocurrency has hit headlines in recent months after Bitcoin’s value soared to $17,100 in December, before tumbling to $5,995 at the start of February. Only last month Lloyds Banking Group banned customers from buying cryptocurrency with its credit cards, because of its seemingly inherent instability. Facebook also banned ads for cryptocurrencies under its new terms and conditions.
In his speech, Carney described cryptocurrencies as demonstrating “the classic hallmarks of bubbles” and warned against investing in them.
“Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of Bitcoin was ten times that of sterling. Consider that if you had taken out a £1,000 student loan in Bitcoin in last December to pay your sterling living costs for next year, you’d be short about £500 right now. If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery.”
The Bank of England’s governor also believes they fail in their most important role, as money that you can use in exchange for goods.
“Currently, no major high street or online retailer accepts Bitcoin as payment in the UK, and only a handful of the top 500 US online retailers do. For those who can find someone willing to accept payment for goods and services in cryptocurrencies, the speed and cost of the transaction varies but it is generally slower and more expensive than payments in sterling.”
Although Carney doesn’t believe cryptocurrencies currently pose a significant risk to the financial system, they could in the future if their relative market size continues to grow.
“Looking ahead, financial stability risks could 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.”