BOE highlights “crypto” as future challenge

March 3, 2022

Sir Jon Cunliffe, Deputy Governor for Financial Stability, has identified “Crypto and Climate” as the two key challenges facing global authorities

This will be a major focus of financial stability and other authorities in coming years.

Key passages from yesterday’s speech:

“The advent of crypto technology in finance poses a very different set of questions. Recording and transferring ownership of assets is the bedrock of the financial system’s role in storing value and in making transactions. Crypto technology enables recording and transfer to take place without the banks or custodians that have historically carried out this function.

“At present, these technologies have been used in finance mainly to create speculative investment assets like Bitcoin. These are highly volatile because they have no intrinsic value – in other words as there is nothing behind them there is nothing to prevent their value going to zero.

“The value of such assets has grown very rapidly over the past few years and they are beginning to become connected to the conventional financial system. We have also seen strong growth, though from a lower base, in so called ‘stablecoins’ – crypto assets used for crypto payments like Tether.

“And, more recently, we have seen early examples of the combination of crypto technology and the public blockchain with so called ‘smart contracts’ to offer financial services like lending or derivatives, algorithmically and wholly outside the conventional financial system – and outside regulation.

“A great deal has been said recently about the financial stability risks from crypto. In a nutshell, crypto is not at present large enough or connected enough to represent a financial stability risk. But it is growing and developing fast.

Regulatory authorities are now engaging to ensure that as this technology is used to a greater extent and in different ways the same risks are protected to the same extent, whether a financial activity is carried out using crypto technology or conventional finance.

The full speech can be read here:

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