Crypto Regulation Will Be Done Country By Country – Bank of England Headbr>
Mark Carney, the governor of the Bank of England, has called for the regulation of cryptocurrencies to protect consumers from a market that shows classic bubble tendencies.
In a speech delivered to the Inaugural Scottish Economics conference in Edinburgh, Carney expanded on views expressed last month when he branded cryptocurrencies such as bitcoin a “failure,” and stressed they could not effectively replace traditional currencies.
“Cryptocurrencies act as money, at best, only for some people and to a limited extent; and even then, only in parallel with the traditional currencies of the users,” he said. “The short answer is they are failing.”
The Bank of England governor said bitcoin fails to pass several key tests of what a currency should be able to do. Citing the work of Scottish economist Adam Smith, Carney noted that currencies should be a store of value, a medium of exchange, and a unit of account. Bitcoin and other cryptocurrencies fail at least two of these tests.
“Cryptocurrencies are proving poor short-term stores of value,” he said. “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 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. And bitcoin is one of the more stable cryptocurrencies.”
He said that cryptocurrencies exhibit all the “classic hallmarks of bubbles” which attract “fools.”
“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,” Carney said. “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.”
Carney said greater regulation of cryptocurrencies is needed. But the rules were likely to be introduced on a country-by-country basis before any international push.
“These are national issues. I suspect they will remain national issues for some time,” Carney said. “I would have greater expectation of a series of national steps rather than some big coordinated approach…. 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.”
The Bank of England’s Financial Policy Committee is currently considering the risks posed to UK financial stability by the proliferation of cryptocurrencies. And internationally, the Financial Stability Board (FSB), which Carney chairs, will report to the G20 in Argentina later this month on the financial stability implications of cryptocurrencies.