Central Banks To Set Standards On Banks’ Crypto Exposure

Table Of Content

• Content

• Conclusion

• FAQ

• You May Also Like

• External Links

The Bank of International Settlements' Group of Central Bank Governors and Heads of Supervision (GHOS) has approved a worldwide benchmark for banks' exposure to crypto assets (BIS). According to the formal notification made on December 16th, the regulation, which caps banks' crypto reserves at 2%, must be enforced on January 1, 2025.

Named "prudential treatment of crypto asset exposures," the report introduces the final standard structure for banks regarding exposure to digital assets such as tokenized traditional assets, stablecoins, and unbacked cryptocurrencies, as well as feedback from stakeholders gathered in a consultation that began in June. The study will be included as a new section in the revised Basel Framework, according to the Basel Committee on Banking Supervision.

However, recent events have highlighted "the significance of establishing a solid minimum framework for globally operating banks to reduce risks," as the BIS has noted in its statement. Furthermore, it read as follows:

Conservative prudential treatment will be applied to unbacked crypto assets and stablecoins with inefficient stabilization methods. Financial stability can be maintained with responsible innovation thanks to the standard's provision of a worldwide regulatory framework for globally active institutions' exposures to crypto assets.

Find out more about CBDCs by reading this related article! The interest of central banks in digital currency

Basel Committee Chairman and Bank of Spain Governor Pablo Hernández de Cos made the following observation on the standard:

The Committee's crypto asset standard demonstrates our dedication, desire, and capacity to act in a coordinated, global fashion to address new threats to the financial system. Following today's approval by GHOS, the Committee's work plan for 2023–24 will focus on significantly enhancing global banking regulation, supervision, and practices. It pays special attention to "emerging risks," "digitization," "climate-related financial concerns," and "monitoring and executing Basel III."

After a month-long testing phase that permitted cross-border transactions worth $22 million, the BIS revealed the findings of its multi-jurisdictional central bank digital currency (CBDC) trial in September. Twenty commercial banks from Hong Kong, Thailand, China, and the UAE participated in the pilot initiative with their respective central banks. An estimated 90% of central banks are contemplating adopting CBDCs, according to BIS research issued in June.

Conclusion

In conclusion, it is positive that central banks have decided to establish regulations on the level of cryptocurrency exposure that financial institutions are allowed to have. Central banks need to take an active role in regulating the fast-changing world of cryptocurrency to protect consumers and keep the financial system stable.

FAQs

Does the central banking system currently back cryptocurrency?

The electronic funds transfer system incorporates several different payment methods into one card, such as a credit card, debit card, phone card, and ID card. If a bitcoin block lacks a transaction history, it is not genuine. At the moment, cryptocurrency has the support of the central bank.

What is central bank crypto?

Can you explain what a CBDC, or digital currency issued by a central bank, is? A "central bank digital currency" (CBDC) is a digital currency issued and supported by a central bank. As cryptocurrencies and stablecoins have grown in popularity, governments and central banks across the globe have recognized they need to respond with their own kind of digital currency or risk being left behind.

How does crypto affect banking?

Blockchain technology might make monetary transactions more quickly and cheaply than traditional banking institutions by creating a distributed ledger for monetary transactions (like Bitcoin). Distributed ledger technology has the potential to streamline the clearing and settlement systems by lowering operating costs and facilitating real-time transactions between financial institutions.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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External Links

• Central Bank Governors endorse limit on crypto asset bank exposure

• Central Banks to Enforce Standard on Banks’ Exposure to Crypto in 2025

• Governors approve plan to regulate banks’ crypto exposures

• Central Banks to set standards on Bank’s crypto exposure

• Basel Oversight Body Backs Standards for Banks’ Crypto Exposure

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