Bank of England warns that cryptocurrencies could threaten the financial system

Bank of England (BoE) Deputy Governor Jon Cunliffe has warned that cryptocurrencies like Bitcoin are fast gaining acceptance in the mainstream market and has raised concerns that a sudden price correction could affect the market.

Jon Cunliffe – Deputy Governor of the BOE

He expressed concern after the bank’s latest financial stability report looked at the state of the UK financial system.

Banks have to be ready to protect themselves against risk

While Jon Cunliffe pointed out that crypto is “growing very rapidly,” Jon Cunliffe noted that about 0.1% of UK household wealth is currently invested in crypto, with an estimated 2.3 million participants.

“Their prices can fluctuate a lot and could theoretically or practically fall to zero,” he said, emphasizing that the bank must be prepared to mitigate these risks.

“The problem that worries me is that the sharp price correction, if built into the financial system, could really affect other markets and financial market participants. It hasn’t happened yet, but it takes time to develop standards and regulations. ”

Regulatory framework for cryptocurrencies as soon as possible

Jon Cunliffe calls for:

“We really have to deal with the regulations immediately so that when things get serious, we really have the legal framework to avoid the risk.”

According to the BOE’s Financial Stability Committee, risks to the financial system have returned to pre-pandemic levels.

“The UK’s big banks can afford to continue to support households and businesses in difficult situations. Uncertainty about the public health risks and economic outlook remains.

For example, there is short-term pressure on supply, inflation and Covid, which could have a greater impact on market performance, especially since it is not yet possible to identify new virus variants that may or may not reduce the effectiveness of vaccines. ”

Once again, banks need to step up their capital protection against future shocks – equal to 1% of all their loans, also known as a “countercyclical capital buffer”.

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