Speaking to BBC Radio 4’s Today programme Sir Jon Cunliffe, the Bank’s Deputy Governor for Financial Stability said while cryptocurrencies weren’t currently a risk they are “growing very fast” and becoming more integrated into traditional financial systems. He added: “So the point at which they pose a risk is getting closer. I think regulators and legislators need to think very hard about that.” Sir Jon previously discussed the potential risks to financial stability from cryptocurrencies at a speech in October in which he said regulation needed to be looked at as a “matter of urgency”.
He described a massive collapse in cryptocurrencies as a “plausible scenario”.
Regulators around the world, including the UK’s Financial Conduct Authority have been looking at the potential risks of cryptocurrencies and how to regulate them.
The FCA have been particularly concerned about the risks for younger investors with a survey finding the 69 percent of under-40 investors incorrectly believed cryptocurrencies were regulated.
Marcus Sotiriou, Sales Trader at digital asset broker Global Block noted it was likely central banks would increasingly look at cryptocurrencies “as they are concerned to some extent with losing control”.
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Referring to a recent report from the Bank for International Settlements he told Express.co.uk: “This report showed how central banks are worried about the tremendous growth of cryptocurrencies recently; in particular the rise of stablecoins as a means of payment.
“Stablecoins are being thought of as a potential crypto-based alternative to traditional currencies and have grown to a $130billion market.
“Christine Lagarde, ECB president, has said central banks have a responsibility to ensure that citizens have access to the safest form of money — central bank money — in the digital age.
“I think part of her goal to encourage the adoption of central bank digital currencies may include regulating stablecoins heavily, which central banks seem to regard as a threat.”
Warnings of cryptocurrency-related scams have grown in recent months with the high profile example of a new token based on the Netflix hit series Squid Game.
After soaring thousands of percent in value the website closed and the currency lost all value.
Latest figures from Action Fraud found over £146million had been lost to cryptocurrency fraud so far this year with over half of victims under 45.
Despite its warnings, the Bank of England has recently announced a consultation into a digital currency of its own- the so-called Britcoin.
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Unlike the similarly-named Bitcoin though the Bank of England’s proposed currency would be fully regulated and linked directly to the pound to increase its stability.
Other cryptocurrencies linked to real-world currencies, known as stablecoins, already exist such as Tether which is linked to the US dollar.
Experts have raised cautions about the adoption of a Bank of England digital currency though.
Head of Investment Analysis at AJ Bell Laith Khalaf warned: ““Britcoin could cause widespread disruption in the banking sector if it is introduced, as well as increasing the chance of a run on commercial banks in times of financial stress.
“The Treasury and the Bank of England need to think long and hard before embarking on this digital mission, because the risks look high, and the benefits marginal.”
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