BoE’s Andrew Bailey says crypto has ‘all the potential’ to threaten financial stability


Bank of England Governor Andrew Bailey said that the rapid growth of cryptocurrencies means that they could threaten the world’s financial system. “It’s not a financial stability issue today, but it has all the potential to be one, particularly if the system starts getting leverage into it,’’ Bailey toild at an event at Cambridge Union on 25 November. “It looks like it could happen, so it’s going to be a very high priority internationally.” The volatility of crypto is a worry, he added, noting that the market’s value has increased ten-fold since the start of the pandemic. He said there is a strong case for digital currencies, but they have to be stable if they are going to be widely used. When asked his thoughts on bitcoin being accepted as an official currency in El Salvador, he said, “What would worry me most of all is, do the citizens of El Salvador understand the nature and the volatility of the currency that they have?” READ Crypto firms lawyer up as regulatory clouds gather Bailey was speaking at the event with Mohamed El-Erian, the former chief executive officer of Pimco, the world’s biggest bond trader. He has also served as a deputy director at the International Monetary Fund. When Bailey discussed El Salvador’s use of bitcoin, El-Erian noted that, “The IMF wasn’t happy.” Bailey steered clear of any hints about the future of UK monetary policy in his remarks. He said in normal recessions, demand would drop while supply more or less stayed the same. However, as the economy emerges from the pandemic, both supply and demand are in flux, which increases uncertainty and makes the bank’s job harder. Traders are pricing in a small interest-rate increase at the UK central bank’s next decision on 16 December, which would be the first hike since August 2018. After stressing that policymakers would have to act as inflation heads toward 5%, Bailey disappointed markets earlier this month by not raising the key base rate from 0.1% to 0.25% as predicted by many. READ Bitcoin and ether rise despite India’s crypto crackdown Earlier this week, Bailey told Parliament’s Treasury Committee that he is “very uneasy” about the outlook for inflation. He also said that the bank might scrap its policy of forward guidance after raising expectations of an imminent hike. A move on rates in December would make the Bank of England one of the world’s first to start hiking them as the global economy recovers from the Covid pandemic. The Federal Reserve and the European Central Bank have said that the current surge in inflation is mostly temporary and signalled they will wait for more evidence before increasing borrowing costs. To contact the author of this story with feedback or news, email Brian Swint



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