Cryptocurrencies pose limited risks to the UK’s financial stability.
That is contained in the October Financial Stability in Focus report produced by the Bank of England.
UK, cryptocurrencies, and financial stability
According to the Financial Policy Committee (FPC) that edited the report, cryptocurrencies are becoming a stable part of the financial system without undermining its stability. The report reads:
“Cryptoasset and associated markets and services continue to grow and to develop rapidly. Such assets are becoming increasingly integrated into the financial system. The FPC judges that direct risks to the stability of the UK financial system from cryptoassets are currently limited.”
However, the committee highlights the fact that regulation is still lacking. It will be necessary for regulators locally and globally to take a stand in a cryptocurrency market that is snowballing. That will limit risks and maintain the integrity of the financial system.
The FPC, for its part, will continue to monitor the relationship between cryptocurrency and finance in the UK and recommends caution:
“The FPC will continue to pay close attention to developments, including the relationship between cryptoassets and the UK financial system, and thereby seek to ensure resilience to systemic risks that may arise from further developments in cryptoasset markets. The FPC considers that financial institutions should take a cautious and prudent approach to any adoption of these assets.”
Financial Stability in Focus, the report on financial stability in the UK
The report as a whole highlights three aspects:
- UK banks are strong enough to support households and businesses as they emerge from the crisis;
- Some financial markets have risks, while there are vulnerabilities in the non-bank sector;
- Small businesses, in particular, have increased their debt, but the financial system is strong enough to handle this.
The UK economy and its banking system consider themselves resilient, having provided support to households and businesses during the pandemic, a time of global crisis.
Nevertheless, the report highlights that the financial system and government will need to continue to offer support.
The FPC, for its part, will remain vigilant about the risks involved in increasing debt. These risks would remain moderate, however, even if the evolution will depend on the post-pandemic recovery. Many companies may not be able to withstand new economic shocks. For this reason, the authority will continue to pay attention to the impact of the recovery and the change in credit conditions.
Grappling with inflation, Covid and the fuel crisis
The UK is struggling with rising inflation. In fact, the Bank of England has also reacted to the pandemic crisis by injecting liquidity into the markets.
The country is also grappling with a real threat to the economy represented by a resurgence of the pandemic. These days, in fact, 40,000 infections have been recorded. At the moment, the situation does not worry the government since the data does not affect hospitalizations and deaths, which remain low.
The fuel crisis is more worrying. Nothing to do with what happened in Lebanon. There is no default problem here but logistics: Brexit has ousted many haulers from Europe who can no longer travel freely but need a visa.
That has led to a crisis not only of fuel but also of other goods, including medicines.
Boris Johnson’s government will have its work cut out to avoid leaving one of the most important economies in the world in difficulty.