According to the deputy governor of the Bank of England, the failure of the cryptocurrency exchange FTX has demonstrated the necessity for more restrictions for cryptocurrencies before it becomes too popular.
According to Sir Jon Cunliffe, a stable cryptocurrency system requires a regulatory structure.
The collapse will not endanger the stability of the financial system, Sir Jon told the audience at a Warwick Business School event on Monday, but there is a greater need for regulation.
“While the crypto world is not at present large enough or interconnected with mainstream finance to threaten the stability of the financial system, its links with mainstream finance have been developing rapidly,” he said. “This was demonstrated during last year’s crypto winter and last week’s FTX implosion.”
“We shouldn’t hold off on creating the regulatory structures required to stop a crypto shock that may have a much more destabilizing effect until it is big and connected.
The difficulties of retrofitting regulations on new technology and new business models once they have reached systemic scale has been proven by the experience in other sectors of digitalization.
The announcement coincides with the UK’s impending approval of a new financial services and markets law that will regulate stable coins and the promotion of digital assets.
Additionally, the Treasury is expected to consult on additional investor protection measures and other regulations that may apply to the marketing and exchange of financial instruments that contain cryptoassets.
However, Sir Jon stated that the Bank is still debating the necessity of a UK digital currency.
“Our work on a digitally native pound is driven by the trends we now see,” he said. “We specifically see trends in payments, including the decreasing role of cash, and more generally we see trends in the increasing digitalization of daily life.”
Physical cash contributes to the requirement that all commercial bank money in the UK must currently be redeemable in cash (Bank of England money), upon demand in cash, and without loss of value. A digital pound might be required in the future to serve the same purpose given the trends away from physical cash, which cannot be used in an increasingly digital economy, and potentially towards new forms of digital currency.
