While not all wealth in the UK is currently invested in Bitcoin assets, this trend is becoming more mainstream according to Sir Jon Cunliffe, deputy Bank governor.
He said that if their value falls sharply, it could have a knock on effect.
He said that the Bank must be prepared to manage these risks.
Sir Jon stated that crypto-currencies account for 0.1% of the wealth in the UK, speaking to BBC’s Today program.
They were held by approximately 2.3 million people, with an average of PS300 per person.
He stressed however that crypto-currencies have been “growing very quickly”, with fund managers wanting to decide whether they should keep a part of their portfolios in cryptocurrency-currencies.
He said that their price could vary greatly and could theoretically or actually drop to zero.
“I think the point at which one worries, I believe, is when it integrates into the financial system. When a large price correction could affect other markets and impact established financial market players, that’s when one should be concerned.
“It’s not yet there, but it takes time for regulations and standards to be created.”
He said, “We need to get our hands dirty and do what we can to make sure that this doesn’t become a bigger problem. We have the regulatory framework in place to manage the risks.” Sir Jon spoke the day after Bank’s latest Financial Stability Report was published, which assessed the health of UK’s financial system.
According to the report, UK households were resilient despite the ending of the furlough scheme as well as other Covid support measures.
It also stated that there was still uncertainty about the economic outlook and health risks.
It said that Covid could still have a “greater impact” on the economy, particularly in light of new versions.
This report comes as Bank policymakers prepare for their next interest rate announcement on Thursday.
In October, the cost of living increased by 4.2%. This is its highest level in nearly 10 years. Analysts predict that interest rates will rise from the record low of 0.1%, which is due to this surge in inflation. Recent Omicron variations have raised doubts.
“The pandemic has had no impact on the UK or global economies. The Bank stated that there is still uncertainty about the future economic outlook and risks to public health.
“For instance, there are near-term supply and inflation pressures and there could also be greater impact from Covid to activity, especially considering uncertainties over whether new variants reduce vaccine effectiveness.
According to the Bank of England’s Financial Stability Committee, the financial system risks have returned to levels that existed before the pandemic.
The Bank stated that “major UK banks are strong enough for households and businesses to continue supporting them, even in severe situations.”
Omicron: Interest rate rise remains in balance
The UK’s prices have risen at an almost 10-year-high rate
Bank of England is sorry about the rising cost of living
It is currently consulting on lifting the emergency measures that were introduced to allow banks more flexibility at the beginning of last year.
Banks will be required to create an additional buffer of capital to protect against future shocks. This buffer is worth 1% of all loans. It is also known as a counter-cyclical capital buffer. This will increase to 2% by next year.
The Bank is also looking at ways to loosen affordability limits for mortgages.
The lender should examine whether it is possible to eliminate a requirement that borrowers be able to afford repayments even if interest rates rise by 3% above the standard rate.
In its report, it stated that the biggest barrier to homeownership is still obtaining funds for a deposit.
