Bank of England Governor, Mark Carney has said that cryptocurrencies are failing as a form of money.
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” Carney, who leads the Financial Stability Board, said in a speech to the inaugural Scottish Economics Conference today.
Carney isn’t calling for cryptocurrencies like Bitcoin to be banned but believes that regulating digital currencies would be a more strategic approach.
Many countries have taken a more firm approach. Indonesia and Bangladesh have banned Bitcoin for payments.
In the UK, some banks have taken action against the use of cryptocurrencies. Lloyds Banking Group banned its customers from purchasing Bitcoin and other digital currencies using its credit cards in February. Not long after, Virgin Money followed Lloyds and banned several digital currencies from being purchased on its credit cards.
Both Lloyds and Virgin money have raised concern about customers racking up large amounts of debts, while cryptocurrencies rise and fall in value unpredictably.
Carney stated that for now, cryptocurrencies don’t pose a risk to the financial stability of Britain, but they do for individual investors.
Carney added: “Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of Bitcoin was ten times that of sterling. Consider that if you had taken out a £1,000 student loan in Bitcoin in last December to pay your sterling living costs for next year, you’d be short about £500 right now.
“If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery. And Bitcoin is one of the more stable cryptocurrencies. Indeed, the average volatility of the top ten cryptocurrencies by market capitalisation was more than 25 times that of the US equities market in 2017.”
Digital currencies can allow for anonymous and potentially criminal transactions to be made including, money laundering, drug trafficking and tax evasion.
“Bringing crypto-assets onto a level regulatory playing field could also catalyse private innovation to create a more resilient, effective payments system. With these foundations in place, the scene is set for better payments, a better economy and a better Friday night out,” Carney concluded.