Bank of Canada says cryptoassets’ volatility is obstacle to payment acceptance

Bank of Canada says cryptoassets’ volatility is obstacle to payment acceptance
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Economy3 hours ago (May 20, 2021 10:51AM ET)

Bank of Canada says cryptoassets' volatility is obstacle to payment acceptance
© Reuters. FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie/File Photo

By Julie Gordon and David Ljunggren

OTTAWA (Reuters) -Price volatility is keeping cryptoassets from being widely accepted as a means of payment, the Bank of Canada said on Thursday, though the markets’ rapid evolution is an emerging vulnerability to Canada’s financial system.

The central bank said it is monitoring cryptoasset markets, which have surged in popularity in the last year as they have become easier for consumers to access through exchange-traded funds, listed companies and other investment vehicles.

Despite the broadening interest, cryptoassets like Bitcoin and other cryptocurrencies remain high risk as their intrinsic value is hard to establish, the Bank said in its annual review of Canada’s financial systems.

“Price volatility stemming from speculative demand remains an important obstacle to the wide acceptance of cryptoassets as a means of payment,” it said.

, the biggest and most popular cryptocurrency rose nearly 14% on Thursday to $42,000, after plunging 14% a day earlier to its lowest since late January.

The Bank of Canada added that while cryptoasset markets are currently not of “systemic importance” in Canada, that could change if a major technology firm were to issue a cryptocurrency that became widely accepted as a digital payment method.

The Bank of Canada is currently developing its own cash-like central bank digital currency that it could issue to the public, should the need arise. Many other top central banks are doing similar work.

Digital currency group Diem Association, formerly known as Facebook Inc (NASDAQ:)’s Libra project, said this month it plans to launch a pilot of a U.S. dollar stablecoin, though did not say when.

Stablecoins are backed by traditional assets and are a potential solution to the price volatility of cryptoassets, though they also pose risks, the central bank said.

“Unless stablecoins are backed exclusively by Canadian dollars, their widespread adoption could inhibit the Bank’s ability to implement monetary policy and act as lender of last resort,” it said.

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