The Bank of England is no more optimistic about the crypto industry than it was last month – but has a less volatile CBDC in the works.
Jon Cunliffe – Deputy Governor at the Bank of England – recently asserted that cryptocurrencies’ risks to the financial sector are drawing closer. He urged regulators to take action before such an economic threat can manifest in traditional markets.
In a conversation with BBC’s Today Programme, Cunliffe aired his thoughts about how he feared that the volatility of cryptocurrency markets could start to spill over into traditional financial markets. He claimed that this risk is “getting close” and encouraged regulators to “think very hard” about the possibility.
My judgment is they’re not, at the moment, a financial stability risk, but they are growing very fast. And they’re becoming integrated more into what I might call the traditional financial system.Jon Cunliffe
Cunliffe has also been in the news before about his views on cryptocurrencies. Last month, he argued that crypto markets are now large enough to send shocks throughout the rest of the financial system in the event of a collapse. Indeed, the industry has grown larger than ever, having recently touched a $3 trillion market cap.
The United Kingdom’s Financial Conduct Authority is yet to introduce sufficient consumer protections around cryptocurrencies. That includes regulation covering crypto ads, such as the Floki Inu banners that started appearing on London public transport last month. However, there are apparent actions undertaken in this regard as local authorities recently banned such ads.
With that said, the governor doesn’t seem much worried about private company-issued cryptocurrencies, such as Meta’s Diem. Given that they haven’t reached mass adoption, regulatory action in that area is not urgent.
Prospects of a CBDC for Bank of England
Instead of opting for cryptocurrencies, the Bank of England has been thinking hard about developing a CDBC – nicknamed “Britcoin”. However, such a product wouldn’t be launched until at least 2025, according to policymakers. Instead, the bank will consult on the project in 2022, followed by a technical explanation of its architecture.
Cunliffe said the CBDC would be fully regulated and tethered to the sterling to decrease volatility, which he called “the safest form of money”.
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