John Cunliffe, the Bank of England’s deputy governor for financial stability, says regulators need to “get ahead with the work” to bring the use of crypto technologies within the regulatory ambit.
Speaking at the residence of the British High Commissioner in Singapore on Tuesday, Cunliffe recently said “crypto winter“Which refers to a period of declining crypto prices that remain low for a long time.
There are inherent risks in finance, and while technology can change the way risks are managed and distributed, it cannot eliminate them, he said.
“Financial assets with no intrinsic value … are only worth paying for the next buyer. So they are inherently volatile, very vulnerable to sentiment and prone to collapse,” Cunliffe said.
Regulators and other public authorities as well as innovators have an interest in developing appropriate regulation and managing risk.
John Cunliffe
Deputy Governor, Bank of England
Bitcoin is down more than 70% from its all-time high in November and was trading below $20,000 on Wednesday, its lowest level since December 2020, according to data from CoinDesk.
As investors dumped crypto amid a widespread sell-off in riskier assets, the market cap of crypto fell below $1 trillion, Below $3 trillion at its peak in November,
Cryptocurrencies may not be “integrated enough” into the rest of the financial system to have “immediate systemic risk”, but he said he suspects the boundaries between the crypto world and the traditional financial system “will become increasingly blurred”. “
“The interesting question for regulators is not what will happen next to the value of crypto assets, but what we need to do to ensure … potential innovation … without giving rise to increased and potentially systemic risks. Is.”
‘Same risk, same regulatory outcome’
Regulators are getting faster pound the alarm Regarding crypto, and Cunliffe said that a . Expansion of The regulatory framework for crypto to be included should be based on the iron principle of “same risk, same regulatory outcome.”
“For example, if a stablecoin is being used in a transaction as a ‘settlement asset’… it should be as secure as other forms of money,” he said.
Stablecoins are a type of cryptocurrency that tracks real-world assets, usually another currency. Many of them try to put themselves face to face with the US dollar or any other fiat currency. Some of them are backed by real-world assets such as bonds or currencies.
They were designed to offer a sound store of value to minimize price volatility. Although The collapse of TeraUSD (UST) – a so-called “algorithmic” stablecoin pegged to the US dollar – sent shockwaves through the crypto markets. Unlike other stablecoins, TeraUSD was not backed by real assets. Instead, it was governed by an algorithm that attempted to do it one-to-one with the US dollar. That algorithm failed.
Cunliffe said holders of such stable coins must have a clear legal claim that enables them to redeem the coin “without loss of value” within days and in central or commercial bank money.
“Needless to say, this kind of requirement is a long way from the worlds of Terra and Luna,” he said, referring to TerraUSD, which fell to 26 cents even though it was one-for-one US dollars. To maintain the peg. ,
its sister token Lunawhich has a floating price and is also meant to act as a kind of shock absorber for the UST lost almost all its value,
“We have levels of risk mitigation inherent in our regulatory standards and framework that we have deemed necessary. Where we cannot apply regulation in exactly the same way, we must ensure that we achieve the same level of risk mitigation.”
He recommended that the activities be stopped “if and when it proves not possible for certain crypto related activities.”
A Bank of England official said that for the “same risk, same regulatory outcome” approach to be effective, it must be pursued at international standards and incorporated into domestic regulatory regimes.
UK He added that the Financial Stability Board will publish a consultation report later this year with recommendations to promote international stability in regulatory approaches to non-stablecoin crypto assets, markets and exchanges.
He added that innovators, regulators and public authorities are interested in developing appropriate regulation and managing risks.
“It is only within such a framework, that [innovators] can really flourish and the benefits of technological change can be secured,” Cunliffe said.