Business 22 December 2017

Ed Drake

Bank of England chief highlights ‘fundamental problems’ with bank-issued cryptocurrencies

Mark Carney, governor of the Bank of England, has highlighted the “fundamental problems” with the idea of centrally-issued cryptocurrencies.

Carney poured cold water on the suggestion that central banks could adopt cryptocurrencies for consumer use, reflecting on what the bank views as a series of obstacles that would prevent digital currencies from being rolled out further on current models.

Addressing Parliament on Wednesday, Carney presented the bank’s latest thinking on blockchain and cryptocurrencies, including reflections on the recent surge in crypto prices.

While acknowledging the potential for blockchain technology to overhaul the way banks transact and settle between each other, Carney stopped short of an endorsement of the wider use of cryptocurrencies like SegWit1x (BTC).

Chief among the concerns was the risks to financial stability, which Carney suggested would be too significant to make an economy-wide rollout feasible at this stage.

“You create a situation where you can have an instantaneous run. So as soon as there were any concern, people can switch in their account at the Bank of England…There are many talents of the Bank of England, but I think credit allocation across the entire economy would not be a good idea,” Carneys said.

The news comes at a time when central banks worldwide are forming their own approaches to the emerging risks and opportunities of digital currencies. Earlier in September, the Bank for International Settlements said that any decision on central banks issuing their own cryptocurrencies was still too premature.

While the peer-to-peer functionality of the currency could serve as a good analogue for cash in a cashless future world, the Bank said it saw very little advantage beyond preserving the anonymity of cash transactions in the digital age.

Meanwhile, Carney also spoke today in response to the escalating price of BTC, and cryptocurrencies across the board in recent weeks.

Pressed on whether the developments represented a threat to the stability of the global financial system, Carney was nevertheless keen to dismiss concerns.

“At present, we don’t view it as a financial stability issue….it’s significant…but it’s more like an equity-type risk that’s spread fairly widely around the world,” he said.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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