There's a big difference between speculative, unbacked cryptos like Bitcoin and stablecoins: BoE's Wilkins
The former deputy governor of the Bank of Canada said she thinks stablecoins have more potential when it comes to central bank adoption than unbacked cryptocurrencies.
“You need to have transparency and assurance about the quality of those assets,” said Carolyn Wilkins, now a member of the Bank of England’s Financial Policy Committee.
“I think the assets that are unbacked, the value there is that people believe more people will continue to buy it. Those assets don’t have any intrinsic value, and their mechanism for securing a stable value is, in my mind, not a credible one.”
There are more than 50 central banks around the world currently researching their own cryptocurrencies, including the Canadian and English central banks, as the usefulness of cash in transactions is falling, said Wilkins.
Her comments come not long after El Salvador became the first country to accept Bitcoin as legal tender. Newly elected New York City Mayor Eric Adams is also seeking to bring legitimacy to the nascent asset class, and wants to make New York City a cryptocurrency hub, even proposing to pay municipal workers in crypto.
Wilkins said digital currencies and block chain technology have great potential to provide financial products that are better for consumers and businesses, but cautions that regulating the so-called cryptosphere is an arduous task.
“There are some bandits, there’s a bit of lawlessness,” she said. “The way forward is helping to guide safe innovation through regulation that’s proportionate to the risks.”
The most popular and most valuable cryptocurrency in the world is Bitcoin, which is famously volatile, but is trading near record values at US$56,517 as of Wednesday afternoon.
There’s great risk in trading Bitcoin, said Wilkins, let alone in governments adopting it as legal tender, as it has been used in criminal activity such as money laundering and even financing terrorism.
A stablecoin, on the other hand, has its value pegged to a more stable asset, like the U.S. dollar, or gold, and that may make it more feasible as a central bank offering, said Wilkins.
While perhaps intriguing, the regulations are a long ways off, she said, as central banks are currently researching how a central bank issued cryptocurrency would impact bank deposits and the value of other traditional assets.
In a recent speech on behalf of the Bank of England, Wilkins likened the cryptocurrency space to the new frontier of the Wild West.
“We should not forget the Wild West is also home to law-abiding pioneers, whose purpose is reinvention and expansion.” she said in a speech in London Monday.
To that end, Wilkins did give a hat tip to Wealthsimple Inc., who is at the forefront of crypto asset trading in Canada.
“What’s really important is that the platforms providing this service are stable and safe, and that the retail investor understand the risk they’re taking.”