Bank of England Deputy Governor Jon Cunliffe has brushed off the huge growth in popularity of cryptocurrencies, saying they pose no threat to traditional banking.
The veteran banker suggested no crypto had enough volume to be recognised as a system that could overtake established finance any time soon.
“The speculative boom in crypto is very noticeable but I don’t think it’s crossed the boundary into financial stability risk,” he said in an interview with CNBC’s Joumanna Bercetche.
“There are issues of investor protection here. These are highly speculative assets, but they’re not of the size that they would cause financial stability risk, and they’re not connected deeply into the standing financial system.
“Were we to start to see those links develop, were we to start to see it move out of retail more into wholesale and see the financial sector more exposed, then I think you might start to think about risk in that sense.”
While labelling crypto speculation as a practice mainly limited to retail investors for now, he also reiterated the central bank’s position that people investing in digital assets should be prepared to lose all their money.
It echoed the sentiment of the Bank of England Governor – Andrew Bailey – who recently warned investors off, branding crypto as something which had “no intrinsic value”.
While suggesting the bank would be worried if cryptocurrencies move from retail more into wholesale, Mr Cunliffe added it would apply only to speculative cryptocurrencies such as Bitcoin or Ethereum and not to stablecoins pegged to USD such as Tether.
Stablecoins, he believes, should be regulated and supervised by the government.
While Bitcoin is regarded as a highly volatile currency since it plunged from a record high of $65,000 in April to around $32,800 at the time of writing, it doesn’t stop the Bank of England from exploring its own digital currency (CBDC) in order to compete with a decreasing use of fiat.
China pilots one of the most advanced CBDC initiatives
Even though the UK seems to be playing it cool over crypto, the same cannot be said for China where authorities have ordered cryptocurrency miners in Sichuan province to shut down their operations.
China banned local cryptocurrency exchanges back in 2017, forcing them to move offshore. China is some way down the road in terms of its own CBDC initiatives, and has already tested the digital yuan in several regions and cities.
The Asean Financial Innovation Network, founded by the Monetary Authority of Singapore, also announced it is ready to launch a “digital currency sandbox” in order to enable financial institutions and companies to test CBDC applications.
Additionally, the Central Bank of the United Arab Emirates has also announced it has a plan to issue its own digital currency. This move by the CBUAE is part of its 2023 to 2026 strategy of positioning it among the world’s top 10 central banks.
Even though, at first, the UAE has been slow on crypto adoption, during the last few years it became one of the leading countries and crypto advocates.