Cryptocurrencies are failing as currencies as they are proving to be poor short-term stores of value with many of them showing signs of bubbles and the time has come to regulate them like the rest of the financial system, Bank of England Governor Mark Carney warned Friday.
“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 in a speech delivered virtually to the inaugural Scottish Economics Conference at Edinburgh University.
The Bank of England Chief pointed out that the average volatility of the top ten cryptocurrencies by market capitalization was more than 25 times that of the US equities market in 2017.
“This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing,” he said.
He said he preferred to call Bitcoin and its peers as “crypto-assets” as they are not true currencies.
Though Carney, who is the chairman of the G20’s Financial Stability Board, disapproved cryptocurrencies, he expressed interest in their underlying technologies such as blockchain.
“Authorities should be careful not to stifle innovations which could in the future improve financial stability; support more innovative, efficient and reliable payment services as well as have wider applications,” he said.
In the same vein, Carney said cryptocurrencies need not be banned as they pose no material risk to the whole financial system, but they must be regulated.
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” he said.
Financial stability risks could increase if people began to pile into cryptocurrencies or the linkages with the traditional finance sector grew without improvements in market regulation, cyber defences and anti-money laundering standards, Carney added.
Expressing the displeasure at cryptocurrencies’ use in shielding illegal activities, Carney said “anarchy” cannot be condoned.
Addressing the security concerns posed by cryptocurrencies, Carney said the Bank of England is looking into the threats they pose to the UK financial stability.
Globally, the FSB will report to the G20 in Argentina later this month on the financial stability implications of crypto-assets, he added.
Regarding the creation of a central bank digital currency, or CBDC, Carney said the bank has an open mind about it. However, he pointed out that there were “broader societal questions such as how society balances privacy rights with the extent to which the information in a CBDC could be used to fight terrorism and economic crime.”
“A CBDC shouldn’t be a solution in search of a problem or an effort of central bankers to be down with the kids,” Carney said.