Chris Green: Bank Of England is pulling up the drawbridge rather than facing the crypto threat

Technology analyst and CNR columnist Chris Green looks at last week’s speech from Bank Of England governor Mark Carney about cryptocurrencies…

Cryptocurrencies need regulation. The current ‘Wild West’ situation we live in where anyone can create, trade and sell a cryptocurrency needs to end. The lack of formal oversight brings with it too many risks, too much temptation to defraud and too much instability. Crypto valuation graphs look more like early sketches for a new rollercoaster at Six Flags, rather than a tracker of a legitimate currency or investible asset. A regulated environment will bring a degree of order to the chaos, as it does with fiat currencies in developed economies.

With that in mind, it is surprising and a bit sad that the Bank of England has opted to go to war with the crypto community, rather than work with it to develop a progressive and viable regulatory framework.

If I’m perfectly honest, I didn’t expect to be revisiting the terrifying world of Bank of England chief Mark Carney’s mind quite so soon. Just a fortnight after he declared to students that Bitcoin has failed as a currency, he has once again declared all things crypto to be the spawn of the devil. We are not talking about a desire to implement regulation, Carney would stamp on the nascent crypto community with a very large boot.

In his speech at the end of last week, Carney was a man speaking with a passionate hatred and fear of cryptocurrencies and their potential to disrupt and reshape the global economic process. He has portrayed Bitcoin, Ethereum, Ripple, Litecoin and everything else currently in the crypto space as an invading force that must be beaten back. The BoE and the UK economy is a castle, and his speech was akin to pulling up the drawbridge before Bitcoin and Co. can get across the moat.

Instead, Carney sees a future where central banks are issuing cryptocurrencies, fully under the control of financial regulations and, moreover, saddled with many of the same issues that plague fiat currencies. The idea of a crypto Pound policed by the BoE and a crypto Dollar policed by the Federal Reserve is good, but does it really have to be at the expense of independent cryptocurrencies? Considering the UK is home to 18 per cent of the world’s crypto exchanges, according to research from the University of Cambridge, it would be a foolish move and a blow to the economy.

For me, this line from Carney’s speech sums up the short-sighted view of the BoE and of its head: “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.”

Of course, the crypto world needs to be held to account, but why should it conform to the same narrow parameters that fiat currencies and physical investible assets are currently squeezed into. There is no definable benefit to the wider financial services sector, or to the regulator other than it’s an easy and lazy way to apply draconian, heavy-handed and outdated legislation. Also, he really did paraphrase a quote from Spider-man!

I’m not alone in the view that regulation is both needed, but not at any cost. Crypto-currency trade body Crypto UK also supports new regulation for the sector, but said that policymakers should not try to adapt or force existing financial rules onto existing cryptocurrencies. It shares the view that we should be developing bespoke regulation, in the round with all stakeholders.

Right now, most governments that have woken up to crypto are applying a heavy hand to regulation. The opportunity is there for a major economy and financial powerhouse to break from the pack and be progressive and forward-thinking. The UK could become the cryptocurrency centre of the financial world, much as it is with tradition finance. To do it, the Bank of England, as well as the Financial Conduct Authority need to grow up, stop being afraid and start being open to new ideas and new sources of advice. The first government and central bank that does is going to deliver a major fillip to its economy. With Brexit and all the other challenges to the UK’s global standing, it’s a boost that the Bank of England should be securing for the UK, rather than trying to drown it in the moat.