The recent drop in cryptocurrency prices has alarmed world authorities about the risk of some projects, such as the Terra ecosystem. In the context that regulatory reviews aimed at the industry may be just around the corner, the Central Bank of Canada also expressed the urgency to impose such rules before the sector has become so large that it could bring down the financial market. usually at some point.
Regulatory Urgency
The recent drop in cryptocurrency prices has alarmed world authorities about the risk of some projects, such as the Terra ecosystem. In the context that regulatory reviews aimed at the industry may be just around the corner, the Central Bank of Canada also expressed the urgency to impose such rules before the sector has become so large that it could bring down the financial market. usually at some point.
Carolyn Rogers, a senior deputy governor at the Bank of Canada, said in an interview with Reuters that regulating the industry has become increasingly pressing as more people invest in the asset class.
He worried that as the industry continues to grow rapidly, attracting new investors who may not understand the risk involved, a violent price decline could eventually have a spillover effect on the wider financial system.
The Lieutenant Governor saw the sector as a “largely unregulated area” where investors tried to make “quick wins” without much general knowledge. According to a recent survey conducted by the bank, 13% of Canadians owned Bitcoin in 2021, up from 5% the year before.
Despite the urgency to introduce relevant regulations, he acknowledged the difficulties in categorizing and supervising the asset class within the existing regulatory framework.
Like most central banks around the world, the Bank of Canada also takes a cautious view of cryptocurrencies. Asked by Liberal MP Yvan Baker if Bitcoin can help Canadians opt out of decades-high inflation, Rogers replied that the bank does not see it as a solution to inflation nor does it recognize it as “a stable source of worth”. However, he did admit that there were some “major innovations” within the crypto space.
Contrary to its relatively neutral attitude on cryptocurrencies, the bank is currently in the development stage of a potential CBDC. In March, it announced a partnership with MIT on a year-long research project to explore the potential design of a CBDC and how that product would interact with the financial system.