All of this this work is being closely co-ordinated by the Financial Stability Board (FSB), which, as it set out in yesterday’s statement[8], is working to ensure cryptoassets are subject to robust regulation and consultation. The FSB will publish a consultation report later this year with recommendations for promoting international consistency in regulatory and supervisory approaches to non-stablecoin cryptoassets, markets and exchanges as well as for strengthening international coordination in this area. And, putting on my domestic hat, given that the the Bank of England is responsible for regulation and supervision of systemic payment systems in the UK, our intention is to apply the ‘same risk, same regulatory outcome’ approach in the UK. The Government has announced its intention to legislate in the current session of Parliament to update the powers of the Bank of England and the Financial Conduct Authority to regulate and supervise stablecoins. We hope to issue a consultation document on the regulatory policy framework later this year. Taken as a whole, the UK authorities have made clear that they are prepared to see stablecoins – issued by either banks or non -banks - operate in the UK, provided they are properly regulated and supervised[9]. This should not, however, be interpreted as any weakening in standards for risk mitigation. I doubt any of the stablecoins currently in operation in other jurisdictions would meet the necessary standards for operation at systemic level in the UK – whether in the crypto world, should that become systemic, or in conventional financial services.
But to be successful and sustainable innovation has to happen within a framework in which risks are managed: people don’t fly for long in unsafe aeroplanes. Let me elaborate on these in turn. The first lesson is that finance carries inherent risks. Technology can change the way these risks are managed and distributed, but it cannot eliminate them. I will highlight three clear examples. Most obviously, financial assets with no intrinsic value – that is to say with no real economy assets backing them and no means of generating revenue - are only worth what the next buyer will pay. Page 3  They are therefore inherently volatile, very vulnerable to sentiment and prone to collapse. The majority of crypto-assets in in circulation today fall into this category and are proven to have very erratic swings in value – in both directions - as can be seen from the evidence of the last few months. The proponents of crypto assets like Bitcoin have argued that their technological design enables them to function as a hedge against economic volatility and inflation – a sort of ‘digital gold’. The reality, however, is that they behave as a very speculative, risky asset. Since November, against the background of a weakening global economy, higher inflation, and tighter monetary policy, gold has lost 7% of its value, the S&P 500 has lost 18% while Bitcoin has lost 70%[1].