The Bank of England governor Mark Carney wants cryptocurrencies such as bitcoin to be brought in line with the financial markets that are already regulated.
In a speech at the Scottish Economics Conference in Edinburgh, Carney said cryptocurrencies are failing to replace money.
He said they act as money only for some people and to a limited extent, “and even then only in parallel with the traditional currencies of the users”.
Now is the time for regulation, he added. “The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” he said, stating that this would reduce criminal activity related to cryptocurrency and safeguard the financial system.
“A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system,” he said.
The Parliamentary Treasury committee recently announced that it is looking at the opportunities and risks associated with digital currency and how technologies such as blockchain, which underpins bitcoin, will affect the finance sector.
The inquiry will assess how the government and financial services regulators such as the Financial Conduct Authority (FCA) and the Bank of England can create an environment to protect consumers, without holding back innovation.
Digital assets are increasingly coming under the scrutiny of regulators. In China, regulators recently said the use of initial coin offerings (ICOs) to raise money amounts to illegal fundraising, which could destabilise the Chinese economy.
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Companies use ICOs, which is a combination of crowdfunding and cryptocurrencies, to raise money by offering investors a digital token in exchange for money. This is unregulated and used by many tech startups to raise money quickly.
Unlike initial public offerings, where investors gain shares in the ownership of the company, ICOs offer coins of the company, which can appreciate in value.
Carney is also on the Financial Stability Board, which observes the global finance sector and provides guidance about regulations that are needed to protect it. For example, in 2016 it added financial technology (fintech) to its list of things to keep an eye on.