Mark Carney launched a scathing attack on cryptocurrencies such as Bitcoin today saying "fools" were pumping up their values.

The Bank of England governor warned that the "currencies" showed the "classic hallmarks of bubbles" as he called for them held to the "same standards as the rest of the financial system".

Bitcoin saw its value go through the roof last year - beating the 17th Century dutch Tulip Mania, the South Sea bubble and the dot com bubble of the early 2000s to become the biggest economic bubble in history, according to the Daily Mail.
But its value has plummeted this year and is nearly half the peak of US$20,000 ($27,640).

In a speech delivered via video-link to the Inaugural Scottish Economics conference in Edinburgh today, Carney branded cryptocurrencies a "failure" and a lottery.

Advertisement

"The prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool," he said.

"At present, crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions."

The Governor added: "A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system.

"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system.

"Being part of the financial system brings enormous privileges, but with them great responsibilities."

Carney said that, in his view, crypto-assets do not "appear to pose material risks to financial stability."

Despite his strong criticism, Carney conceded that the distribute ledger technology which underpins cryptocurrencies can act to help the way payments are made evolve.

"Even if the current generation is not the answer, it is throwing down the gauntlet to the existing payment systems. These must now evolve to meet the demands of fully reliable, real-time, distributed transactions.

Advertisement

"The Bank believes that distributed ledger technology could over time significantly improve the accuracy, efficiency and security of processes across payments, clearing and settlement."

Theresa May warned in January that Bitcoin must be regulated to stop it being used to bankroll terrorists and criminals.

Chancellor Philip Hammond also backed calls for reform at the World Economic Forum in Davos, warning that the world needs to "be cautious about Bitcoin".

Concerns have been growing that cryptocurrencies are being used as a safe haven for international drug and arms traffickers.

Speaking at Davos, May said: "Cryptocurrencies like Bitcoin, we should be looking at these very seriously, precisely because of the way that they can be used, particularly by criminals."

She added: "It is something we do need to look at."

Advertisement

Hammond said there was a need to regulate the newly-invented currency before it destabilises the global economy.

Bitcoin was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves.

Bitcoins are created without using middlemen – which means no banks take a fee when they are exchanged.

They are stored in what are called virtual wallets known as blockchains which keep track of your money.

One of the selling points is that it can be used to buy things anonymously.

However, this has left the currency open to criticism and calls for tighter regulation as terrorists and criminals have used to it traffic drugs and guns.

Advertisement

Bitcoins are created through a process known as "mining" which involves computers solving difficult maths problems with a 64-digit solution.

Every time a new maths problem is solved a fresh Bitcoin is produced.

Some people create powerful computers for the sole purpose of creating Bitcoins.