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Crypto as a threat to global financial stability?



According to Sir Jon Cunliffe, the deputy governor of the Bank of England, the risks posed by digital assets like Bitcoin are getting closer. He is now calling on regulators to take action against the rapidly growing crypto sector.

The top official at the Bank of England fears that the high volatility of cryptocurrencies will spill over to other traditional markets if they are not nipped in the bud.

"In my opinion, they pose no risk to the financial world at the moment, but they are growing very quickly and are becoming more and more integrated into what I would call the traditional financial system."

Cunliffe believes the digital asset threat to financial stability is on the horizon.

So the point at which cryptocurrencies pose a risk is getting closer. I think regulators and lawmakers need to think about this very carefully.

Global authorities are pushing for new crypto laws to be introduced

The UK Financial Regulator FCA and other agencies around the world have been trying to introduce new regulations for the crypto industry for some time. They are designed to protect consumers and companies from the risks of digital currencies.

The influential Basel Committee has pledged to revise the proposals for banks to become involved in regulating cryptocurrencies. The European Union has also been asked to make “quick” decisions about updated crypto regulations.

Cunliffe indicated that private digital assets like Meta - formerly Facebook, which is aiming for its own cryptocurrency Diem - don't need regulatory scrutiny at the moment.

“There are proposals for new actors who are not banks. That includes some of the big tech platforms and some of the social media. They want to get into the crypto industry and spend their own money. But I think these proposals do not yet exist on a large scale. So I don't think we're behind the curve here ”.

Britain's proposal for a digital pound

The Deputy Governor's remarks come at a time when the Bank of England is in consultation with a number of technology experts, city officials and the Treasury Department on developing a central bank digital currency (CBDC) for the UK market.

The UK is proposing the creation of a digital pound - or what is known as the Britcoin. This is intended to be used for everyday expenses in addition to bank deposits and physical cash.

However, policymakers have dampened hopes of the creation of a CBDC with warnings that a digital currency is unlikely to arrive until the second half of this decade . This is due to the development schedules and strict considerations.

In the next year (2022) the Bank of England plans a consultation on the crypto project, followed by a technical explanation of the creation of a digital currency.

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