Bitcoin is too volatile to be adopted as a legal tender, says BoE chief

Bank of England Governor Andrew Bailey has expressed concern over El Salvador’s adoption of Bitcoin (BTC) as a legal tender, after President Nayib Bukele announced the launch of Bitcoin City.

Bailey argued that El Salvador’s decision to introduce Bitcoin as a currency was alarming because consumers are likely to suffer from the extreme volatility of cryptocurrency.

Trading at around $ 43,000 on the first day of El Salvador’s Bitcoin adoption as a legal tender, Bitcoin rose to a new historic high above $ 68,000 on November 9th. BTC’s price has dropped significantly since then, with Bitcoin trading at $ 54,626 at the time of writing.

Bitcoin 90-day price chart. Source: CoinGecko

“It worries me that a country would choose it as its national currency,” Bailey said at the Cambridge University student appearance, Bloomberg reported Thursday.

The governor also questioned whether Salvadorans at all understand the nature and volatility of Bitcoin, causing his greatest concern.

Bailey also quoted a new statement on El Salvador from the International Monetary Fund (IMF), which is responsible for tracking risks to global financial systems. Issued on Monday, the statement outlines “significant risks” resulting from Bitcoin as a legal tender and Bitcoin trading in El Salvador.

The IMF previously issued a warning against El Salvador’s Bitcoin law in June, which did not prevent the country from adopting it and accepting BTC as legal tender in September. Bailey added that the BoE is investigating whether to launch a digital central bank currency (CBDC), saying:

“There is a strong argument for digital currencies, but in our opinion it should be stable, especially if used for payments. That is not true for cryptocurrencies.”

Related: El Salvador’s dollar debt dives into Bitcoin bond plans

The news comes shortly after BoE Vice Governor of Financial Stability Sir Jon Cunliffe declared that CBDCs are a “revolution in the functionality of money driven by technology.” On the other hand, the majority of the UK adult population was skeptical and concerned about a potential CBDC adoption in a August study conducted by Redfield & Wilton Strategies.