Sunday, 09 December, 2018

18:24Bank of England Calls for Regulation of Bitcoin and Other Cryptocurrencies

BRITAIN-ECONOMY-BANK-RATE-FOREX-BOE Carney said cryptos are too volatile to operate well as a system of money
| 03 March, 2018, 00:38

Cryptocurrencies are failing as a form of money and have shown classic signs of being a financial bubble, requiring regulators to protect consumers and stop their use for illegal activities, Bank of England Governor Mark Carney said on Friday.

His comments come as bitcoin's value continues to swing wildly, having rocketed to almost $20,000 late previous year before plunging.

"This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing". He calculated that the average volatility of the top 10 virtual coins by market capitalization was more than 25 times that of the US equities market in 2017.

The Parliamentary Treasury committee recently announced that it is looking at the opportunities and risks associated with digital currency and how technologies such as blockchain, which underpins bitcoin, will affect the finance sector.

"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 worldwide sanctions", he added.

Virtual currencies based on nothing more than computer code would soon have to adhere to the "same standards as the rest of the financial system", he said, adding: "Being part of the financial system brings enormous privileges, but with them great responsibilities".

"The most fundamental reason to be sceptical about the longer term value of cryptocurrencies is that it is not clear the extent to which they will ever become effective media of exchange". "So-called initial coin offerings will not be allowed to use semantics to avoid securities laws created to protect retail investors in particular". The agency has issued dozens of subpoenas to request information on companies tied to crypto markets, including insight into the structure of ICO sales and pre-sales.


Carney said the central bank would continue to study the use of distributed ledger technology which underlies cryptocurrencies.

"Their worth rests on beliefs regarding their future supply and demand-ultimately whether they will be successful as money", Carney said. Even so, he reiterated that the BOE remains open-minded about the possibility in future.

In other comments, Carney said that he believes cryptocurrency is "failing" as a type of money.

That means working out how to classify the assets, regulate their sales, and push up standards - potentially as crypto derivatives are traded on regulated exchanges.

Further, the central bank chief said he doesn't believe cryptocurrencies now pose significant risks to the existing financial system.

The Bank will present a report to the G20 in Argentina later this month, with Carney hinting at greater controls and also revealing that the central bank had tested ways to use cryptocurrency technologies at the core of the British payments system.

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