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article imageOp-Ed: Mark Carney launches attack on cryptocurrencies

By Ken Hanly     Mar 2, 2018 in Technology
Edinburgh - Mark Carney, Governor of the Bank of England, joined a number of other well-known figures in attacking cryptocurrencies. He urged regulators around the world to monitor them as strictly as other financial assets.
Mark Carney is a Canadian economist who once worked for Goldman Sachs and was Governor of the Bank of Canada. He is now Governor of the Bank of England and Chair of the G20's Financial Stability Board.
Carney rails against cryptocoin "speculative mania".
Speaking at the Scottish Economics Conference in Edinburgh, Carney criticized what he called "global speculative mania" that has caused the rise in the price of cryptocoins. He said the coin offerings should be held to the same standards as other financial assets saying:"Being part of the financial system brings enormous privileges, but with them great responsibilities."
Financial market participants and governments are worried about the potential of cryptocoins to be used for illicit purposes. At the same time, some cryptocoins such as Ripple are developing payment platforms that will be useful for banks and others. However, some think that the volatility around bitcoin and other cryptocoins has contributed to volatility in the February financial markets.
Carney's criticism
Carney feels that cryptocoins are failing as they are a poor store of value. However, the system is still developing. Much of the activity now is as Carney notes speculative so traders are not considering the coins as a store of value but as a speculative investment. After all there have been huge price gains by many cryptocoins.
Carney also notes that cryptocoin prices look like bubbles:"The prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles, including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations, reliant in part on finding the greater fool." While some may be fooled, others are making great gains. Many invested in cryptocurrencies would agree that prices will drop but see this as a positive correction in the price movements. The bubbles do bring investment funds into the area that can aid development.
There have been substantial drops in cryptocoin prices of late, including bitcoin, but as mentioned many consider this as positive and there is as yet no sign of any complete collapse. The corrections may purge the market of some speculators. Many cryptocoins are developing their platforms for various purposes.
Carney lists other concerns such as the use of the coins for money laundering, terrorism financing, and tax evasion. These are problems and show the need for regulations.
Carney's criticism follows that of Agustin Carstens, manager of the Bank for International Settlements, who claimed that bitcoin had become "a combination of a bubble, a Ponzi scheme and an environmental disaster."
Bitcoin miners in Canada
Carney's reference to bitcoin as an environmental disaster no doubt refers to the tremendous amount of power used in bitcoin mining. MIners search the world looking for places such as Iceland where power is cheap. Even Canada is developing mines in the provinces of Quebec, Manitoba, and B.C. where power is relatively cheap. Hydro-Qu├ębec may consider raising its rates for cryptocurrency miners, the utility said. Requests are pouring in to get permission to establish the mines in the province. Spokesperson Marc-Antoine Pouliot claimed that more than 100 cryptocurrency mining companies had expressed interest in coming to Quebec as its power costs are low. He said: "We've had such an important volume (of requests) that there are questions being asked on the tariff offered and the quantity of clients we'll be able to plug in."
Not all cryptocoins have miners and some that do have far lower power consumption than bitcoin.
Bank of England group studying risks of cryptocurrencies to financial stability
The Financial Policy Committee of the Bank of England a body that monitors risks in financial markets, is in the process of carrying out a study of the risks that cryptocurrencies pose to financial stability in the UK. The Financial Stability Board will make a report to the G20 leading industrial and developing countries in Argentina regarding the implications of crytptocurrencies to financial stability.
Carney said that in his own view crypto-assets did not seem to pose any material risks to financial stability,.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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