Mark Carney, the Bank of England governor delivered a speech titled ‘The Future Of Money’ and spoke in depth on cryptocurrencies and the challenges they posed. Throughout the speech he dismissed the idea of cryptocurrencies replacing fiat money.
Mr Carney said that they entailed significant risks for investors and those investing in cryptocurrencies could lose money. The governor said that cryptocurrencies do not currently pose a threat to financial stability. However, he said that if more people started investing the bubble could raise concerns for macro financial stability.
During the speech Mark Carney explained the three qualities of money; store of value, medium of exchange and a unit of account. Following the basic tenants of money Carney gave a brief history of money, covering cowry shells to cigarettes in WW2. He used the image below to explain how cryptocurrencies failed as a store of value and thus by default failed as a medium of excahnge and a unit of account.
The second half of the speech systematically disproved cryptocurrencies position as a real form of money. He claimed they are ‘Poor stores of value’, ‘Inefficient media of exchange’ and ‘Virtually non-existent units of account’.
Policy Response
According to Carney the technology behind crypto-assets is exciting and governments should be careful to not stifle innovation in this area. But, much of the speech focused around cryptocurrencies replacing fiat as the dominant form of money. To wit Carney said: “their prospects of replacing fiat money are tenuous at best”
According to Carney the cryptocurrency markets do not threaten financial institutions, however, if retail adoption where to grow and greater integration to the traditional financial system were to occur risk would increase.
In terms of the regulatory response Mr Carney said there were three options:
- Isolate
- Regulate
- Integrate
China’s heavy-handed approach to regulation was cited as an example of isolation leading to ‘missed opportunities’. Mr Carney suggested that the regulation option would be most beneficial as it could help combat illicit activities, promote market integrity and increase the safety of the financial system. However, no examples of what this regulatory option might look like were given.
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities.”
Throughout the speech the idea of cryptocurrencies replacing fiat was dismissed and Mark Carney had this to say in the closing remarks:
“I trust you have gathered by now that for many reasons the crypto-assets in your digital wallets are unlikely to be the future of money.”
Crypto Community Response
The speech has elicited rebuttals from crypto enthusiasts which typically referred to the flaws of fiat currency. As well as Mr Carney’s poor performance of the Canadian economy during his time at the Canadian central bank:
My favorite nocoiners are the ones who run currencies.
Mark Carney oversaw a 40% drop in the gold value of the Canadian dollar in 5 years & a 7% drop in sterling in 5 years. His currencies lost half their value in 10 years, while Bitcoin appreciated 10,000,000%.
Who is failing? https://t.co/pThlB5BHzO— Saifedean Ammous (@saifedean) March 2, 2018
Despite Mark Carney disregarding the possibility of crypto replacing fiat, the speech is undoubtedly pushing the debate further to into mainstream awareness. A debate which the crypto community appears to take as a challenge.
