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June 17, 2024
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‘Inefficient’ Bitcoin ‘not taking off’ as a financial service

Andrew Bailey spoke before MPs today (Getty Images)

Andrew Bailey spoke before MPs today (Getty Images)

The Governor of the Bank of England says that Bitcoin is ‘inefficient’ and ‘not taking off’ as a financial service.

Speaking before MPs today, Andrew Bailey and other Bank leaders answered questions on topics including cryptocurrency and their plans for a new “digital pound”, as well as interest rates.

Bailey said the Bank continues to monitor developments with top cryptocurrencies like Bitcoin, but the world’s best-known digital currency didn’t appear to be integrating itself into the financial system very well.

He said: “It’s not taking off as a core financial service. For example, using bitcoin as a payment service is pretty inefficient.”

“So I don’t think the integration into the financial system has kept up the momentum that was once there.

“But we have to keep a very close eye on it.”

Carolyn A. Wilkins of the Bank’s Financial Policy Committee added that its relevance at the moment was due to its status as a speculative asset.

“Even if it has no intrinsic value, there is an interest that is out there,” she said. “It could still have legs from some investors – speculative investors.

“For me, its future is going to be about how it integrates with the financial system, if it is going to have any use at all.”

Wilkins added that she believes “backed crypto”, where the value of the coin is pegged to a government-backed currency, “is much more important”.

Bailey was sceptical of these coins, known as “stablecoins”, as well, as there can be a risk that the peg can’t be kept up. But he said the Bank of England’s own digital currency, which it consulted on last year, could change this as it would have the backing of a central bank.

“Stablecoins purport to be money. At the moment, I think… their value is not necessarily stable,” he said.

“But what we are doing in the UK is putting in the regulatory regime for them. Because it’s very important that if you call something stable then it actually is stable.

“That’s not only because we like rules, but because it should enable things.”

Elsewhere in the committee meeting, Bailey said transport and utilities firms might be more affected by higher interest rates.

When asked about whether companies that are highly levered, and therefore more at risk from higher interest rates, were clustered in certain sectors, he noted there were a few where this was the case.

“If you look at this country in leveraged lending, there’s transport, utilities… water companies,” he said.

He also warned that there is still a risk of ‘global shocks’ hitting the UK economy, especially if the conflict in the Middle East leads to higher oil prices.

The price of Bitcoin has climbed in the past year, over hopes that US investors will soon have access to an exchange-traded future allowing them to invest in the cryptocurrency, after tumbling in 2022.

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