A top Bank of England official warned reporters that fast-growing crypto-currency assets might represent a threat to the current banking system.
Although Bitcoin is not now owned by much of the wealth of UK families, it is becoming more popular, according to deputy Bank governor Sir Jon Cunliffe.
It may have a knock-on impact if their value dropped substantially, he warned.
He noted that the Bank has to be prepared to manage those risks.
Sir Jon told reporters that crypto-currencies now account for roughly 0.1 percent of UK household wealth.
They were believed to be held by 2.3 million people, with an average value of £300 per person.
He did emphasize, though, that crypto-currencies have been “expanding extremely quickly,” with fund managers asking whether they should keep a portion of their holdings in crypto-currencies.
“Their price can fluctuate a lot, and they might theoretically or practically go to zero,” he explained.
“I believe the time at which one should be concerned is when it is fully integrated into the financial system, when a large price correction might have a significant impact on other markets and established financial market actors.”
“It isn’t there yet, but developing standards and rules takes time.”
“We really need to pick up our sleeves and go to work,” he continued, “so that by the time this becomes a much greater concern, we’ve got the regulatory structure in place to limit the dangers.”
Sir Jon spoke the day after the Bank of England released its latest Financial Stability Report, which looked at the state of the UK’s financial system.
Despite the cessation of the furlough scheme and other Covid assistance measures, UK families remained “resilient,” according to the analysis.
However, it cautioned that there was still uncertainty about health hazards and the economy’s prognosis.
It stated that Covid might still have a “larger impact” on the economy, particularly in light of future versions.
The research is released as the Bank of England prepares to issue its next interest rate decision on Thursday.
In October, the cost of living increased by 4.2 percent, the largest percentage in over a decade. Analysts expect interest rates to rise from their present record low of 0.1 percent as a result of the rising in inflation. However, because of the emergence of the Omicron variety, worries have lately arisen.
“The UK and worldwide economy are still recovering from the pandemic’s consequences. However, there is still a lot of ambiguity about the hazards to public health and the economy “The Bank stated.
“For example, there are near-term supply and inflation pressures, and Covid might have a bigger influence on activity, especially given the uncertainty about whether new virus types impair vaccination efficacy.”
The financial stability committee of the Bank of England stated that the risks to the financial system had reverted to their pre-pandemic levels.
“Major UK banks are robust enough to continue to assist families and companies, even in the most extreme situations,” the Bank stated.
It is conducting a consultation on easing emergency measures enacted at the start of the year to allow banks more leeway.
Banks will have to set up an additional capital buffer of 1% of their total loans to protect against future shocks (known as a counter-cyclical capital buffer). Next year, it will increase to 2%.
The Bank is also considering easing mortgage affordability criteria.
It’s considering scrapping a requirement that lenders determine whether borrowers could still afford repayments if interest rates rise by 3% above the regular variable rate.
It also stated in its analysis that accumulating cash for a down payment remains the most major obstacle to home ownership.