Bank of England boss Andrew Bailey has pledged “tough love” as policymakers look to regulate cryptocurrencies, warning that public interest must not be ignored for the sake of innovation.
Speaking at TheCityUK’s virtual annual conference earlier today in the City, Bailey said while innovation can challenge existing rules, public interest must be at the heart of advances in digital currency.
He said: “What we cannot have is a world where innovation gets a free pass to ignore the public interest.
“The odds of such an approach not ending well are too high.”
He added the Bank is keen to get ahead of the curve and set out “rules of the road” for fintech firms and digital currency to ensure financial stability is protected and public confidence in money is not impacted.
He said: “Playing catch-up with public policy is not a recipe for success.
“There will inevitably be elements of tough love in such a process, and some disappointed ambitions, but I am confident that out of it will come a robust form of innovation.”
It comes after the Bank last week launched a consultation on the regulation of private digital currencies and a potential central bank digital currency (CBDC).
Bailey has been an outspoken critic of so-called crypto-assets, such as bitcoin, recently labelling them “dangerous”.
In his speech on Tuesday, he said crypto assets “have extrinsic value, in the sense that people like to collect and own them, just as they like to collect and own all sorts of things, but that extrinsic value is highly unstable and could be nothing”.
He said the Bank’s work is focusing on stablecoins, which have backing assets, and a possible CBDC.
He cautioned that stablecoins “have the potential to be systemic in terms of their importance for the financial system and its stability”.
Both stablecoins and a central bank alternative also have the potential to disrupt lending in wholesale markets and impact lending rates, leading borrowers to look outside the banking system, he added.
“We must – both domestically and working with international partners – ensure that we understand and respond to the public interest issues that arise here, so that we can do our job of protecting stability, but also so that innovation can happen in a world where the public interest is well defined and protected,” said Bailey.