Bank of England warns crypto could threaten the established financial system

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The Bank of England warned that cryptocurrencies could threaten the established financial system if they cannot be regulated. The warning comes amid a series of similar warnings from major world powers, including China and Russia, about crypto-related scams which are increasing in number as blockchain technology becomes more popular.

The “how will digital currency affect banks” is a question that has been asked for years. The Bank of England released a report stating that crypto could threaten the established financial system.

According to the BBC, the Bank of England’s Deputy Governor for Financial Stability cautioned that cryptocurrencies like Bitcoin are fast approaching mainstream use, and expressed concern about the rippling impact a sudden price correction may have on the existing financial system.

Following the Bank’s recent Financial Stability Report, which reviewed the soundness of the UK’s financial system, Sir Jon Cunliffe expressed his worries.

The Bank must be prepared to manage risks.

Sir Jon Cunliffe remarked that cryptocurrencies have been “increasing extremely quickly,” and that around 0.1 percent of UK families’ wealth is now in crypto, with about 2.3 million individuals having exposure.

“Their price may fluctuate a lot, and they might theoretically or practically collapse to zero,” he added, emphasizing the need of the Bank being prepared to offset such risks.

“I believe the time at which one should be concerned is when it is fully integrated into the financial system, when a large price correction might have a significant impact on other markets and established financial market actors,” he added.

“It’s not there yet,” he warned, “but designing standards and rules takes time.”

Cryptocurrency regulatory framework -ASAP

“We really need to pull up our sleeves and get on with it,” Sir Jon Cunliffe said, “so that by the time this becomes a lot greater concern, we’ve really got the regulatory structure in place to limit the dangers.”

The risks to the financial system have returned to their pre-pandemic levels, according to the Bank of England’s financial stability committee.

“Major UK banks are robust enough to continue supporting consumers and companies, even in the most extreme scenarios,” the Bank stated, adding that “uncertainty regarding threats to public health and the economic outlook persists.”

“For example, there are near-term supply and inflation pressures, and Covid might have a stronger effect on activity, particularly given uncertainty over whether new virus types impair vaccination efficacy,” the Bank stated.

Banks will have to build up more capital protection against future shocks, this time worth 1% of all their loans, referred to as a “countercyclical capital buffer.”



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