Bank of England's Head Clamps Down on Cryptocurrency

Bank of England's Head Clamps Down on Cryptocurrency

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Reuters reports that Governor of the Bank of England, Mark Carney, said today at the inaugural Scottish Economics Conference, Edinburgh University, that cryptocurrencies as being incapable of fulfilling the roles of traditional, fiat currencies. He promised a clampdown on any use of cryptocurrency exchanges for money laundering and terrorism-financing.

He said:

"The prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool. 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."

And he took aim at the volatility in cryptocurrency markets.
"Indeed, the average volatility of the top 10 cryptocurrencies by market capitalization was more than 25 times that of the U.S. equities market in 2017," Carney said. "This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing. Their worth rests on beliefs regarding their future supply and demand —ultimately, whether they will be successful as money."
Besides, Mr. Carney underlined that unlike a traditional digital bank transfer, it is impossible to trace the ownership of cryptocurrencies such as Bitcoin, making them attractive to criminals and tax evaders.
“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 cryptoasset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach," Mr. Carney said.
Carney said the BOE's Financial Policy Committee is considering the risks posed to the U.K.'s financial stability by cryptocurrencies. But given the small size of the digital coin market, when compared to global GDP, the risk does not seem to be big.
"At present, in my view, crypto-assets do not appear to pose material risks to financial stability," Carney said. "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 defenses."

Mr. Carney also addressed the possibility of the BoE developing a central bank digital currency (CBDC). He said that “given current technological shortcomings in distributed ledger technologies and the risks with offering central bank accounts for all, a true, widely available reliable CBDC does not appear to be a near-term prospect”.

About a week ago, John Glen, Economic Secretary to the Treasury and City Minister, clarified the stance of the Bank of England regarding digital currencies. He said back then that the Bank does not currently plan to issue a central bank-issued digital currency. However, he said, the Bank is undertaking research to better understand the implications of a central bank issuing a digital currency.

Bitcoin surged to prominence after a single coin’s value soared to almost $20,000 in January. Its value has fluctuated wildly since and a single Bitcoin is currently trading at around $10, 875.  

Do you agree with Mr. Carney? Don't you think the Central Bank is going to get a gain on cryptocurrency bu launching  CBDC? Share your thoughts in the comments section below.

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