Bank of England (BoE) Finds Crypto to Have Minimal Risk to Financial Stability
The Bank of England (BoE) has stated that cryptocurrencies currently do not pose a significant risk to financial stability. During a hearing with Parliament’s Treasury Committee, Sarah Breeden, who will assume her new role on November 1, discussed the value and risks associated with cryptocurrencies. While acknowledging the potential benefits of the underlying technology, Breeden also cautioned about the risks involved with cryptocurrencies.
“Crypto is an asset that has no intrinsic value, whose price could go to zero and therefore investors should be prepared to lose all of their money,” Breeden said. “That megaphone about the risks in it has been consistent and very clear. However, that technology, I think has got the potential to bring benefits to the financial system.”
Breeden emphasized that crypto should be treated as a financial activity rather than compared to gambling. As part of her role, she will contribute to shaping the UK’s regulatory approach to cryptocurrencies and decision-making regarding a central bank digital currency (CBDC).
Crypto’s Current Risk Level for Financial Stability
Currently, Breeden believes that cryptocurrencies do not pose a major risk to financial stability. However, she expressed concerns about potential risks if cryptocurrencies become more interconnected with the broader financial world, particularly through stablecoin usage for payments. Recent events have highlighted risks within the sector, such as the decline in crypto prices contributing to the failure of US banks Silvergate and Signature.
Breeden stressed the importance of global cooperation among regulators in establishing comprehensive and consistent approaches to cryptocurrency regulation due to its global nature.
The Role of Central Bank Digital Currency
Breeden mentioned that a central bank digital currency could serve as the foundation for digital money. However, she acknowledged the need to address privacy concerns when implementing a digital pound. Breeden will become the BoE’s next deputy governor for financial stability as the UK intensifies efforts to regulate the digital asset sector.
In June, the country passed the Financial Services and Markets bill, granting regulators authority to establish a tailored framework for the digital asset sector, promoting safe adoption of crypto in the UK.
Hot Take: Crypto Poses Limited Risk, but Potential Benefits are Worth Exploring
The Bank of England’s Sarah Breeden believes that cryptocurrencies currently do not pose a significant risk to financial stability. While cautioning about the risks involved, she also recognizes the potential benefits of crypto technology for the financial system. However, Breeden highlights concerns if cryptocurrencies become more interconnected with traditional finance and stresses the importance of global regulatory cooperation.
Breeden also sees potential in a central bank digital currency but acknowledges the need to address privacy issues. As she takes on her new role at the BoE, she will contribute to shaping the UK’s regulatory approach to cryptocurrencies and CBDCs. Overall, while crypto may not pose a major risk at present, its potential benefits make it an area worth exploring.
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