The Bank of England confirms that cryptocurrencies and regulation are firmly on its agenda, as its governor, Mark Carney, delivers a critical speech.

[Updated with comment from Baroness Mone]

Bank of England governor Mark Carney has today doubled down on his criticisms of cryptocurrencies in a new speech he’s given to the Scottish Economics Conference. It follows remarks he made last week, where he argued that Bitcoin had “pretty much failed” as a currency (that were discussed here).

Today, though, he’s gone further, arguing that “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”, he argued. “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”.

Carney’s speech, entitled ‘The Future Of Money’, argued that “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 added that they are “proving poor short-term stores of value”, citing the volatility of Bitcoin in recent months in particular, and criticising the fixed supply rules that come with cryptocurrencies (as well as taking aim at Bitcoin being used to pay for illegal activities).

“In the short run, the fixed supply of Bitcoin has fed a global speculative mania that has encouraged a proliferation of new cryptocurrencies”, he said.

He also argued that no major retailer in the UK accepts Bitcoin for payment, with just a handful of the top 500 in the US. He put this down to the capacity constraints of cryptocurrencies, declaring that “Visa can process up to 65,000 transactions per second globally against just 7 per second for Bitcoin”. He also criticised Bitcoin mining costs, and the expense involved in fast-tracking Bitcoin payments.

Policy Changes

If you suspected this would all build up to a policy change, then you’d be correct. Conceding that he didn’t believe crypto-assets to post a material risk to financial stability, he nonetheless put that down to their relatively small percentage of the financial system. Should they grow, as expected, however, then Carney foresees problems. In particular, he expects “extreme price volatility and poor market liquidity”.

As such, Carney forewarned of regulatory clampdowns by announcing that “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”.

He didn’t give specific details of the changes he’s looking to introduce.

Still, Carney insisted as he drew his speech to a close that he didn’t want to dismiss crypto-assets, and that he did see the advantage in them. He also said that the Bank Of England is keeping an open mind about creating a central bank digital currency (CBDC), and is overhauling its own real time gross settlement system as it looks to improve its own tech.

However, his fairly damning assessment of Bitcoin and existing cryptocurrencies makes the current UK position clear. That rather than actively supporting, promoting and regulating cryptocurrencies, Carney’s position currently seems more oppositional.

Response

Baroness Michelle Mone OBE, the founder of EQUI (a cryptocurrency-based platform for investment in new, innovative technology companies) is one of those who’s had a mixed response to Carney’s speech, and she argued to CNR that “cryptocurrency has millions of people invested in it and it’s not going away”.

“Mark Carney raises a very important point, that of regulation”, she said. “The simple fact is we need it. Everybody who believes in cryptocurrencies agrees that we need regulation to move forwards, nobody wants this to be the wild west anymore. With regulation comes stability”.

She added, adopting a more positive tone than Carney, that “what is clear that a huge amount of innovation is happening and this new technology is going to change the way we do things. It’s not just about digital money. As Mark says, with smart contracts we can create new assets with new mechanisms for payment”.

“I believe that cryptocurrencies are the future – the first Bitcoin was mined only nine years ago and now the governor of the Bank of English has a speech dedicated to it”, she added. “Just imagine where we’ll be in another nine years!”

The full text of Mark Carney’s speech can be read here.

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