Cryptocurrencies like Bitcoin (BTC) do not pose a significant risk to the financial system at their current levels, according to Deputy Governor of the Bank of Canada, Paul Beaudry.
Beaudry spoke at the Ontario Securities Commission Dialogue 2021 on November 23rd about the risks to the stability of Canada’s financial system.
When asked if cryptocurrencies pose a risk, the deputy governor replied that the Bank of Canada did not, as yet, believe that crypto “evolves in a way that creates systemic risk to a financial system.” This is because cryptocurrencies are “entirely removed from a financial system,” noted Beaudry.
But as the crypto market gets bigger, with more people investing in it, crypto becomes a greater risk, which could mean some vulnerability, the official said:
“We’re not ready to see this as a major risk to the economy, but we’re keeping a very close eye on it.”
Beaudry also emphasized that classic cryptocurrencies such as Bitcoin do not play a major role in payments, as investors buy BTC “mainly for speculative purposes”.
But there are also digital assets like stablecoins backed by assets and fiat currencies that could potentially play a bigger role in payments, he said. “We are keeping an eye on that, too,” added Beaudry.
Canada has grown to be one of the most crypto-friendly countries in the world and is one of the first jurisdictions in the world to approve an exchange-traded Bitcoin fund. Canada is also a popular spot for global crypto miners and ranks as the fourth largest nation in terms of hash rate according to the Cambridge Bitcoin Electricity Consumption Index (as of August 2021).
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But despite the ongoing development and introduction of cryptocurrencies, the Bank of Canada has previously expressed a certain skepticism towards cryptocurrencies. In May, the Central Bank of Canada said digital assets like Bitcoin remain a high-risk asset despite being taken over by institutional investors.
“Price volatility due to speculative demand remains a major obstacle to the widespread acceptance of crypto assets as a means of payment,” wrote the Bank of Canada in its Financial System Review of key financial risks and economic vulnerabilities.