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BoE's Carney calls for regulation for 'failing' cryptocurrencies

Cryptocurrencies must be subject to regulations like the rest of the financial system, Bank of England Governor Mark Carney said in a March 2 speech.

"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities," he said, speaking at the inaugural Scottish Economics Conference in Edinburgh.

Authorities must make a decision as to whether to "isolate, regulate or integrate" crypto-assets and similar activities, he said, noting that some jurisdictions had gone as far as to ban cryptocurrencies altogether, or to seal them off from the mainstream financial system in order to prevent contagion. China, for example, has banned exchanges, payment services companies and financial institutions from handling them.

The BoE's view is that it is better to regulate parts of the cryptocurrency ecosystem in order to "combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system," Carney said.

The BoE's Prudential Regulation Authority is in the process of clarifying how today's regulatory requirements for banks would apply to crypto-asset activity and exposures in the future, he added.

Cryptocurrencies 'are failing'

Authorities are already concerned that the anonymity afforded by cryptocurrencies means that they can be used for illicit activities, something which "cannot be condoned," according to Carney.

He added that cryptocurrencies raise "broader societal questions" about how to balance the individual's right to privacy with a need to fight economic crime and terrorism. He also expressed skepticism about how well cyrptocurrencies function as a store of money due to their extreme volatility.

"Cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users. The short answer is they are failing," he said.

Carney added: "Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of bitcoin was 10 times that of sterling. Consider that if you had taken out a £1,000 student loan in bitcoin last December to pay your sterling living costs for next year, you'd be short about £500 right now. If you'd done the same last September, you'd be ahead by £2,000. That's quite a lottery."

The prices of many cryptocurrencies have already exhibited "all the classic hallmarks of bubbles," he said.