Bank of England warns on cryptocurrency risks

A top Bank of England official warned the BBC that fast-growing crypto-currency assets might represent a threat to the current banking system.

Although Bitcoin is not now owned by much of the wealth of UK families, it is becoming more popular, according to deputy Bank governor Sir Jon Cunliffe.

It may have a knock-on impact if their value dropped substantially, he warned. He noted that the Bank has to be prepared to manage those risks.

Sir Jon told the BBC's Today show that crypto-currencies now account for roughly 0.1 percent of UK household wealth.

They were believed to be held by 2.3 million people, with an average value of £300 per person.

However, he stressed that crypto-currencies had been "growing very fast", with people such as fund managers wanting to know whether they should hold part of their portfolios in crypto-currencies.

"Their price can vary quite considerably and they could theoretically or practically drop to zero," he said.

"The point, I think, at which one worries is when it becomes integrated into the financial system, when a big price correction could really affect other markets and affect established financial market players.

"It's not there yet, but it takes time to design standards and regulations."

He added: "We really need to roll our sleeves up and get on with it, so that by the time this becomes a much bigger issue, we've actually got the regulatory framework to contain the risks."


Sir Jon spoke the day after the Bank of England released its latest Financial Stability Report, which looked at the state of the UK's financial system.
Despite the cessation of the furlough scheme and other Covid assistance measures, UK families remained "resilient," according to the analysis.
However, it cautioned that there was still uncertainty about health hazards and the economy's prognosis.
It stated that Covid might still have a "larger impact" on the economy, particularly in light of future versions.
The research is released as the Bank of England prepares to issue its next interest rate decision on Thursday.
In October, the cost of living increased by 4.2 percent, the largest percentage in over a decade. Analysts expect interest rates to rise from their present record low of 0.1 percent as a result of the rising in inflation. However, because of the emergence of the Omicron variety, worries have lately arisen.
"The UK and global economies have continued to recover from the effects of the pandemic. But uncertainty over risks to public health and the economic outlook remains," said the Bank.
"For example, there are near-term pressures on supply and inflation, and there could be a greater impact from Covid on activity, especially given uncertainties about whether new variants of the virus reduce vaccine efficacy."
The Bank of England's financial stability committee said the risks to the financial system had returned to their levels before the pandemic began.
"Major UK banks are strong enough to keep supporting households and businesses, even in severe scenarios," the Bank said.
It is conducting a consultation on easing emergency measures enacted at the start of the year to allow banks more leeway.
Banks will have to set up an additional capital buffer of 1% of their total loans to protect against future shocks (known as a counter-cyclical capital buffer). Next year, it will increase to 2%.
The Bank is also considering easing mortgage affordability criteria.
It's considering scrapping a requirement that lenders determine whether borrowers could still afford repayments if interest rates rise by 3% above the regular variable rate.
It also stated in its analysis that accumulating cash for a down payment remains the most major obstacle to home ownership.