According to Bank of Canada Deputy Governor Paul Beaudry, cryptocurrencies like Bitcoin (BTC) pose no significant risk to the financial system at their current level of adoption.
Beaudry spoke about the risks to the stability of the Canadian financial system during the Ontario Securities Commission’s 2021 Dialogue on November 23.
When asked if cryptocurrencies pose a risk, the Deputy Governor replied that the Bank of Canada doesn’t think crypto “grows in a way that creates a type of systemic risk for a financial system.” ” until now. Indeed, cryptocurrencies are “quite far from a financial system,” Beaudry noted.
But as the crypto market grows with more and more people investing in it, crypto becomes riskier, which could mean some level of vulnerability, the official said:
“We’re not at the point yet that we think this is a big risk to the economy, but it’s something we’re watching very closely.”
Beaudry also pointed out that mainstream cryptocurrencies like Bitcoin don’t play much of a role in payments, as investors buy BTC “primarily for speculation”.
But there are also digital assets like stablecoins that are backed by assets and fiat currencies, which could potentially play a bigger role in payments, he said. “This is something that we are also monitoring,” added Beaudry.
Canada has become one of the most crypto-friendly countries in the world, becoming one of the first jurisdictions in the world to approve a Bitcoin exchange-traded fund. Canada has also been a popular place for crypto miners around the world, ranking fourth among countries in hash rate according to the Cambridge Bitcoin Electricity Consumption Index in August 2021.
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But despite the gradual development and adoption of crypto, the Bank of Canada has already expressed some skepticism about crypto. In May, Canada’s central bank said digital assets like Bitcoin remain a very risky asset despite adoption by institutional investors.
“Price volatility resulting from speculative demand remains a significant obstacle to the broad acceptance of crypto assets as a means of payment,” the Bank of Canada wrote in its review of the financial system on the most important financial risks and economic vulnerabilities .