BOE Senior Adviser: Cryptocurrencies Fail Fundamental Financial Services Tests

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British Union Jack flag flying in front of the Bank of England in the City of London financial center.

The emerging cryptocurrency sector – still fighting for worldwide approval from regulators, politicians, and financiers – got a mild kick in the back when Huw van Steenis, senior adviser to Mark Carney, the governor of the Bank of England (BoE) said cryptocurrencies fail fundamental tests of financial services.

He said this in an interview with Bloomberg Television in Davos, Switzerland on Jan. 21 ahead of the World Economic Forum (WEF) scheduled to take place between Jan. 22 and Jan. 25.

Cryptocurrencies Are Far From Being a Great Unit of Exchange

Van Steenis added that digital currencies such as Bitcoin do not rank high on his list of concerns.

He highlighted that digital assets have their own shortcomings such as being slower, inability to hold value, and not being a good unit of exchange.

Steenis said:

“I’m not so worried about cryptocurrencies. They fail the basic tests of financial services. They’re not a great unit of exchange, they don’t hold value, and they’re slower.

He added that the BoE is facing a major challenge of deciding how to regulate new participants in the banking sector, especially those from tech firms.

According to Steenis, fintech firms are obsessed with customers, but their biggest hurdle is penetrating the market before traditional banks innovate.

He said:

“What I love when meeting with Fintechs is their obsession with customers. The challenge is will they get customers before the traditional banks can innovate.”

Steenis has an impressive record as he previously worked for U.S multinational investment bank Morgan Stanley and Britain’s multinational asset management company Schroders PLC.

Steenis Has a History of Being Against Cryptocurrencies

This is not the first time Steenis has criticized cryptocurrencies but is only reinforcing what he said in September last year in an article he wrote and published in The Financial Times.

He has long argued that Bitcoin fails the innovation test and has five questions to back his claims.

His five questions to prove genuine financial innovation are:

  1.    Is it cheaper?
  2.    Does it offer much better service?
  3.    Is it faster?
  4.    Does it democratize access?
  5.    What are its side effects?

He outlined that Bitcoin is slower than conventional alternatives such as VISA that can handle more than 24,000 transactions per second (TPS).

On the other hand, Bitcoin can only support a mere 7 TPS.

Steenis highlighted that Bitcoin is energy intensive due to its mining process that can be considered a “giant leap backward” as finance aims to be more sustainable.

“Bitcoin is impractical. Its volatility means its conversion back into dollars or another currency cannot be taken for granted,” he wrote in the article.

Steenis is one of the many Bitcoin critics who say that Bitcoin does not provide any practical solutions to the challenges facing the financial system.

Nouriel Roubini, a professor of Economics has consistently attacked cryptocurrencies citing that they are volatile and cannot be used as a unit of account.

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