Flawed Bitcoin faces a brutal reckoning, warns Carney
MARK CARNEY has called for an end to the “anarchy” of cryptocurrencies being used for criminal activities as he warned against viewing them as true currencies.
He said that cryptocurrencies, such as Bitcoin, fail to store value, are difficult and expensive to use for purchases, and are of no use as a unit of account – all of the usual definitions of a currency. So far Bitcoin has proven to be “a global speculative mania” rather than a useful new invention, he said, warning it faces a “pretty brutal reckoning”.
In a detailed attack on the digital currencies, the Governor of the Bank of England said the fashionable assets “exhibited the classic hallmarks of bubbles” with soaring valuations “reliant in part on finding the greater fool”.
Bitcoin has been through a huge boom and bust over the past 12 months, rising in price from $1,000 at the start of 2017 to almost $20,000 in December before falling to roughly $10,000 now.
“It is not clear the extent to which they will ever become effective media of exchange,” Mr Carney said in a speech to the Scottish Economics Conference at Edinburgh University.
“Currently, no major high street or online retailer accepts Bitcoin as payment in the UK, and only a handful of the top 500 US online retailers do.”
Payments can take many hours to process, with fees hitting £40 late last year and currently hovering at around £2, he said, which is far in excess of the pennies paid for almost instantaneous sterling debit card transactions.
Those who dream of a world free from central banks and governments, where everyone uses digital currencies in fixed supply – since there is a limit on the number of Bitcoins which can be created – have forgotten the lessons of history, he said.
“Far from being strengths, the fixed supply rules of cryptocurrencies such as Bitcoin are serious deficiencies. Fundamentally, they would impart a deflationary bias on the economy if such currencies were to be widely adopted,” Mr Carney warned. “If ‘those who cannot remember the past are condemned to repeat it’, recreating a virtual global gold standard would be a criminal act of monetary amnesia.”
The Governor is also concerned that “one of the main reasons for their use is to shield illicit activities” and wants to take steps to end this “anarchy”.
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” he said.