Incoming BOE Deputy Governor Highlights Crypto Risks, Cites Benefits at Parliamentary Hearing

There are benefits to crypto technology, and the digital pound could anchor digital money, Sarah Breeden said.

AccessTimeIconSep 12, 2023 at 12:16 p.m. UTC
  • Incoming deputy governor of the Bank of England Sarah Breeden said crypto does not yet pose much of a risk to financial stability, but could do so in the future.
  • She also said unbacked crypto has no value, and that events like the collapse of Terra and U.S. banks Silvergate and Signature have shown the risks that crypto poses, Breeden said.

Sarah Breeden, who replaces Jon Cunliffe as deputy governor of financial stability at the Bank of England on Nov. 1, highlighted the risks posed by cryptocurrencies while pointing to the benefits offered by the technology that underpins it at a hearing of Parliament's Treasury Committee on Tuesday.

In her new role, the longtime BOE official will help steer the U.K. as it sets outs its approach for regulating crypto and have a role in the decision on whether to issue a central bank digital currency (CBDC).

"Crypto is an asset that has no intrinsic value, whose price could go to zero and therefore investors should be prepared to lose all of their money," Breeden said. "That megaphone about the risks in it has been consistent and very clear. However, that technology, I think has got the potential to bring benefits to the financial system."

Crypto does not pose a big financial stability risk at the moment, she said, but could do so if it were to become more connected to the wider financial world, especially if stablecoins are used for payments. She disagreed with the committee's stance that crypto should be treated like gambling and instead suggested it should be treated as a financial activity.

Recent events have highlighted the risks of the sector, she said. The fall in crypto prices was a "driver of the failure" of two U.S. banks (Silvergate and Signature). The collapse of Terra's UST stablecoin as well as several exchanges and lenders "highlighted how entities in this ecosystem are subject to the same sources of risk as those we have seen in traditional finance," she said.

"Given the global nature of these markets, it is important that regulators work together globally to promote comprehensive and consistent regulatory and supervisory approaches," Breeden said in a questionnaire completed before the hearing.

Breeden was supportive of a central bank digital currency, saying she believes one "would be the anchor for all money in the digital world."

Ensuring privacy with a digital pound is, however, a concern and regulators will "need to demonstrate that whatever it is that Parliament has decided is the right boundaries for privacy is the one that we will deliver," Breeden said.

Edited by Sheldon Reback.


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Camomile Shumba

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.