BOE’s Carney Comments on the Evolving Threat of Crypto-Assets Ahead of G20
The growth and widespread adoption of cryptocurrencies does not pose a risk to global financial stability, but could do so in the future unless proper regulation is enforced, according to Mark Carney, who heads the G20’s Financial Stability Board. The remarks come on the eve of the G20’s first ministerial meetings in Buenos Aires.
Assessing the Risk of Crypto-Assets
In a Mar. 18 letter to G20 central bankers and finance ministers, Carney gave a low-risk assessment of cryptocurrencies on the basis that the new asset class was small relative to the global financial system.
“The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time,” Carney said. “This is in part because they are small relative to the financial system.”
The crypto-asset market peaked at more than $830 billion earlier this year, which was still less than 1% of global GDP, Carney said. This pales in comparison to credit default swaps, which had a notional value that was 100% of global GDP prior to the 2008 financial crisis.
“Their small size, and the fact that they are not substitutes for currency and with very limited use for real economy and financial transactions, has meant the linkages to the rest of the financial system are limited.”
Ending Crypto “Anarchy”
In addition to his role at the FSB, Carney serves as Governor of the Bank of England (BOE). In that capacity, he has called for new measures that will contain crypto “anarchy.” In his letter to the G-20 on Sunday, he explains why:
“Wider use and greater interconnectedness could, if it occurred without material improvements in conduct, market integrity and cyber resilience, pose financial stability risks through confidence effects.”
The BOE Governor has called for cryptocurrencies to be governed by the same standards that currently guide the rest of the financial system.
Though Carney has joined the chorus of policymakers calling for more regulation, few have actually developed actionable guidelines that will help traders and exchanges stay on the right side of the law. At this point, the “right side” appears to be an arbitrary line that is shifting constantly.
U.S. officials have opined recently that we could be a long ways away from an overarching framework for cryptos because regulators are still evaluating them. The U.S. is considered a bellwether for global regulation; measures adopted here could impact how other countries approach crypto-assets.
Lawmakers from Germany and France are expected to present the G20 with a new proposal to regulate cryptocurrencies. Economy chiefs from both countries have expressed concern that crypto-assets pose serious risks for investors.
G20 meetings will continue all year long, with over 45 gatherings planned in Argentina. The final event will be held on Nov. 30 and Dec. 1.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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