CBR
search
Money

The Bank of Canada in Ottawa, Ontario. (Photo: Brittanica)

Bank of Canada calls crypto assets an emerging vulnerability

The Bank of Canada in Ottawa, Ontario. (Photo: Brittanica)

The Bank of Canada said volatility in cryptocurrency assets is an emerging vulnerability to the country’s financial system, a day after a major selloff in the sector.

In its annual review of financial risks, policymakers led by Governor Tiff Macklem said Thursday that while crypto markets are not yet of systemic importance as an asset class or method of payment, that could change “if a large technology firm — a so-called Big Tech — with a sizable user base decided to issue a cryptocurrency that became widely accepted as a means of payment.”

It’s not the first time the bank has cited crypto as a rising concern; it also did so in the 2019 version of the review.

A token representing Bitcoin virtual currency sits among cables and LED lighting inside a ‘mining rig’ computer in this arranged photograph in Budapest, Hungary, on Wednesday, January 31, 2018. Cryptocurrencies are not living up to their comparisons with gold as a store of value, tumbling last week Monday as an equities sell-off in Asia extended the biggest rout in global stocks in two years. (Photo: Akos Stiller/Bloomberg)

The central bank also flagged risks associated with so-called stablecoins — cryptocurrencies that are pegged to a more stable asset to reduce volatility. If widely used, they have the potential to disrupt the bank’s monetary policy mechanisms. “Unless stablecoins are backed exclusively by Canadian dollars, their widespread adoption could inhibit the Bank’s ability to implement monetary policy and act as lender of last resort,” the bank said.

Cryptocurrencies sold off broadly on Wednesday, with Bitcoin briefing dropping to about US$30,000, but have bounced back. Bitcoin was trading just below US$42,000 as of 10:12 a.m. on Thursday.

“Despite the broadening institutional interest in cryptoassets, they continue to be considered high risk because their intrinsic value is hard to establish,” the Bank of Canada said.