More from Andrew Bailey, the governor of the Bank of England, who is speaking to the EU parliament’s committee on economic and monetary affairs in his role as chair of the Financial Stability Board:
Bailey has talked about stablecoins, which are backed by a specific asset, and cryptocurrencies like Bitcoin. He was asked about Iran demanding fees for ships passing through the strait of Hormuz, payable in cryptocurrencies. He said:
I made the distinction earlier between stablecoins, which are designed to be money with assured value, and Bitcoin type crypto which doesn’t have assured value.
I think the Iranians are clearly referring to the second of those, to the Bitcoin type crypto. What lies behind that is the desire to obscure the transaction… this raises big questions, obviously, about money laundering and about controls and, I’ve not been involved in what’s what’s been announced, but it does raise issues.
Discussing private credit, Bailey described it as a “relatively opaque world” and stressed the need for transparency and solid stress testing, because otherwise people might lose faith in the financial system as a whole.
We’ve obviously had some cases in the US, particularly where private credit has, in a sense, gone wrong, and we’ve got defaults happening.
This goes back slowly to my my experience in the financial crisis, that there is a risk that when investors start to observe more of these incidents, that begs a bigger question about their confidence in the system as a whole.
I’m not saying this will happen this time, because it depends on how investors react, what they think they’re getting. But we have to be very sensitive in terms of stress testing.”
A week ago, a New York-based private credit investment firm, Blue Owl Capital, imposed a cap on withdrawals after investors tried to pull $5.4bn from two key funds, in the latest sign of crumbling confidence in the unregulated lending market.
There are growing jitters over potentially risky loans arranged by private credit firms, which lend to companies using investor money outside the traditional regulated banking system and are seen as particularly exposed to the AI spending boom.
