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Tuesday, February 7, 2023

Central Banks Could Now Dictate The Operation Of Banks’ Crypto Exposure

At the recent Bank for International Settlements, an international standard for the exposure of banks to crypto assets had been endorsed by the Group of Central Bank Governors- as well as the Heads of Supervision of the BIS. The standards, which do set a limit of 2% on the number of crypto reserves amongst all the banks, must start getting implemented on the 1st of January, 2025- as mentioned in an official announcement on the 16th of December.

The report, which was dubbed the Prudential treatment of crypto-asset exposures, does introduce the final standard structure that banks need to implement that is strict regarding their exposure of them to digital assets, which also includes stablecoins, tokenized traditional assets, and several unbacked cryptocurrencies.

BIS Has Created A Set Of Guidelines For The Central Banks To Follow When It Comes To Crypto-Assets

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The announcement made by BIS does highlight that the direct exposure of the global banking system does remain relatively low when related to digital assets. But most of the recent developments have gone ahead and outlined the importance of having a strong minimum framework for international central banks that are active in order to mitigate the risks involved.

The announcement also mentioned that the stablecoins with ineffective stabilization mechanisms and unbacked crypto assets will be entirely subjected to a conservative and prudential treatment. The standard will definitely provide a completely prudent, as well as a robust global regulatory framework for the exposure of internationally active banks. 

Back in September, the BIS brought out the results of the central bank’s digital currency pilot- which followed a month-long testing phase. This enabled a cross-border transaction that had a worth of $22 million. The pilot program also involved the central banks of several countries like Thailand, Hong Kong, China, and the UAE.

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