Crypto Assets ‘Present Financial Stability Risks,’ according to the Bank of England. The Bank Starts Creating a Regulatory Framework

According to statements made Thursday by the Bank of England’s Financial Policy Committee, the central bank is working on developing a regulatory framework for crypto assets.

BOE Stresses the Importance of Effective Public Policy Frameworks for Crypto Assets

The Bank of England (BOE) announced to the press on Thursday that it is developing a regulatory framework for digital currencies. The BOE statements are derived from the Financial Policy Committee (FPC) of the central bank, and the bank emphasized sanctions related to the ongoing Russia-Ukraine war. Financial authorities and bureaucrats worldwide have recently expressed fear that Russia could circumvent economic sanctions via crypto assets.

“While crypto assets are unlikely to provide a feasible means of circumventing sanctions on a large scale at the moment, the possibility of such behavior highlights the critical importance of ensuring that innovation in crypto assets is accompanied by effective public policy frameworks that… maintain broader trust and integrity in the financial system,” the BOE press release stated on Thursday.

The BOE Declares That Cryptocurrencies May ‘Present a Number of Financial Stability Risks,’ The Central Bank Is Wary of Stablecoins

For a long period of time, members of the BOE have condemned the bitcoin economy. In mid-November of last year, Andrew Bailey, governor of the Bank of England, expressed alarm about El Salvador legalizing bitcoin. Sir Jon Cunliffe, the Bank of England’s deputy governor for financial stability, stated the next month in December that crypto asset prices might fall to zero.

Financial stability is mentioned in Thursday’s FPC report. “The FPC continues to believe that crypto assets pose modest direct risks to the stability of the UK financial system, owing to their small scale and interconnection with the broader financial system,” the central bank’s committee noted. Additionally, the FPC stated:

However, if the pace of growth seen in recent years continues, and as these assets become more interconnected with the wider financial system, crypto assets will present a number of financial stability risks in the future.

Since the outbreak of the Russia-Ukraine crisis, world leaders have been debating, proposing, and even enacting legislation to explore and regulate digital currencies. Additionally, statements from Thursday’s FPC meeting imply that the BOE wants crypto assets to be regulated similarly to traditional financial assets.

Along with laying out a regulatory framework for crypto assets, the FPC referenced stablecoins, stating that a large one lacking a sufficient deposit guarantee might represent a threat to the financial system. “The FPC believes that a systemic stablecoin secured by a commercial bank deposit would introduce unwelcome financial stability concerns,” the committee added.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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