Sarah Breeden, who assumes the role of deputy governor of financial stability at the Bank of England on November 1, has drawn attention to the potential risks associated with cryptocurrencies while also highlighting the advantages of the underlying technology. She made these remarks during a session with Parliament’s Treasury Committee.
In her new position, Breeden, a seasoned BOE official, will play a pivotal role in guiding the United Kingdom as it formulates its regulatory framework for cryptocurrencies. Additionally, she will be involved in the decision-making process regarding the issuance of a central bank digital currency (CBDC).
Breeden emphasised the speculative nature of cryptocurrencies, noting that they lack intrinsic value and their prices can be extremely volatile, potentially leading to substantial losses for investors. She emphasised that the consistent and clear message regarding the risks of cryptocurrency has been communicated widely. Nevertheless, she acknowledged the transformative potential of the underlying blockchain technology for the financial system.
At present, Breeden does not view cryptocurrencies as a significant threat to financial stability. However, she cautioned that this could change if cryptocurrencies become more intertwined with the broader financial ecosystem, particularly if stablecoins gain traction for payments. She disagreed with the committee’s characterisation of cryptocurrency as akin to gambling and instead suggested that it should be treated as a financial activity.
Breeden noted recent incidents that underscore the risks in the cryptocurrency sector, such as the price decline leading to the failure of two U.S. banks, Silvergate and Signature. Additionally, she cited the collapse of Terra’s UST stablecoin and the challenges faced by various exchanges and lenders as evidence that entities within this ecosystem are exposed to similar risk sources as traditional finance.
Recognising the global nature of cryptocurrency markets, Breeden stressed the importance of international cooperation among regulators to establish comprehensive and consistent regulatory and supervisory approaches.
Breeden expressed support for the development of a central bank digital currency, believing it could serve as the cornerstone of digital finance. However, she acknowledged concerns related to privacy when it comes to a digital pound. She emphasised that regulators must ensure alignment with Parliament’s established boundaries for privacy in any digital currency implementation.