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During a recent meeting of the U.K. Parliament Treasury Committee, the topic of digital currencies was brought to the forefront, but the tone was far from enthusiastic. Bank of England (BOE) Governor Andrew Bailey expressed skepticism about the efficiency and practicality of Bitcoin as a payment method.
Bailey, along with BOE Deputy Governor Sarah Breeden, appeared before the committee to discuss the BOE’s latest Financial Stability Report. During the meeting, Bailey reiterated his view that unbacked cryptocurrencies, like Bitcoin, hold no intrinsic value. He emphasized the inefficiency of using Bitcoin for payments, stating, “My own sense is that it’s not taking off as what I might call a core financial service. […] For instance, using Bitcoin as a payments method is pretty inefficient.”
Challenges in Regulating Bitcoin and Cryptocurrencies
Breeden added that the lack of a regulatory framework is a significant barrier to the integration of cryptocurrency into traditional finance. However, she noted that this situation is gradually changing.
Bank of England Governor Andrew Bailey says the integration of cryptocurrencies into the global financial system has stalled https://t.co/WKwrz9ZZiE — Bloomberg Markets (@markets) January 10, 2024
The discussion also touched upon the challenges posed by stablecoins. Bailey described them as “opaque” and not stable enough, highlighting the regulatory difficulties they present.
The meeting briefly mentioned Central Bank Digital Currency (CBDC), or “Britcoin,” as it was referred to. Breeden pointed out that there is ongoing debate over issues related to privacy and programmability in the context of CBDCs.
Financial Stability Report’s Take on Digital Currencies
The December Financial Stability Report, which was the focus of the meeting, devoted minimal attention to digital currencies. It mentioned that authorities are considering policy options for stablecoins and CBDCs, particularly concerning the mitigation of financial stability risks that could arise from a significant portion of deposits being withdrawn from the banking system during a stress scenario.
The report also reviewed previous findings and recommendations, noting that the Financial Stability Board (FSB) will conduct a review of the implementation of its recommendations by the end of 2025. UK regulators have been actively working on stablecoin regulations throughout 2023, with expectations that these regulations will be enforced in the UK by 2025.
The Bank of England’s cautious stance on cryptocurrencies, particularly Bitcoin, reflects a broader skepticism among global financial institutions regarding the integration of these digital assets into the traditional financial system.
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