Photo by Bank of England/Flickr
Mark Carney, the governor of the Bank of England, said that cryptocurrencies are failing as a system of money.
“How well do cryptocurrencies fulfil the roles of money?” Carney asked during a speech to the inaugural Scottish Economics Conference.
As a response, the BoE chief stated: “The long, charitable answer is that cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users.
“The short answer is they are failing.”
Carney continued: “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.”
Carney said that the extreme volatility of cryptocurrencies reflects the fact that there is no intrinsic value nor any external backing for the digital currencies.
He also said that it was difficult to determine how useful cryptocurrencies could be as money given that only a few companies are willing to accept them in exchange for their services or goods.
However, the Bank boss stated: “Some of the underlying technologies are exciting. Whatever the merits of cryptocurrencies as money, authorities should be careful not to stifle innovations which could in the future improve financial stability; support more innovative, efficient and reliable payment services as well as have wider applications.”
He said that the regulation of cryptocurrency was the key to harnessing the benefits of this new technology.
Carney stated: “The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges but with them great responsibilities.
“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.”