Cryptocurrencies are “failing” in fulfilling the roles of money, Bank of England governor Marky Carney has stated.
Speaking to the inaugural Scottish Economic Conference, Edinburgh University this week, Carney said “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”.
“Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of Bitcoin was ten 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 by about £500 right now. If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery.”
Carney said the average volatility of the top ten cryptocurrencies by market capitalisation was more than 25 times that of the US equities market in 2017.
“This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing. Their worth rests on beliefs regarding their future supply and demand – ultimately whether they will be successful as money,” he added.
The BoE governor said “far from being strengths, the fixed supply of cryptocurrencies such as Bitcoin are serious deficiencies”.
“Fundamentally, they would impart a deflationary bias on the economy if such currencies were to be widely adopted. If “those who cannot remember the past are condemned to repeat it”, recreating a virtual global gold standard would be a criminal act of monetary amnesia.”
Carney stated however that crypto-assets “do not appear to pose material risks to financial stability”.
“This is in part because they are small relative to the financial system. Even at their recent peak, their combined global market capitalisation was less than 1 per cent of global GDP. In comparison, at the height of the dotcom mania, the valuations of technology stocks were closer to about a third of global GDP. And just prior to the global financial crisis, the notional value of credit derivative swaps was 100%.”
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