The Bank of England Calls for a "Strengthened" Regulatory Framework for Cryptocurrencies
Cryptocurrency does not pose an immediate risk to the financial system, but, according to the British Central Bank, it must be fought. The Bank of England said that activity in the cryptocurrency market needs to be controlled simply because the industry continues to grow.
The bank's Financial Policy Committee (FPC) briefly reviewed cryptocurrencies in a financial stability report published on Tuesday. The study notes that, although the cryptocurrency poses a small immediate risk, it is nevertheless important to monitor it.
In particular, the report pointed to a sharp drop in market value, which fell below $1 trillion in June from a peak of $3 trillion in November. The FPC said that during this downturn, several problems similar to previous episodes in traditional finance were identified.
These vulnerabilities included "a liquidity mismatch leading to growth dynamics and sell-offs, as well as the unwinding of positions using borrowed funds and the strengthening of falling prices. Investor confidence in the ability of some so-called "stable coins" to maintain their binding has been significantly weakened, especially for those stablecoins that do not have reliable support or risky assets are used for it with low transparency."
Although the report goes on to say that these risks do not pose a threat to the stability of financial markets as a whole. However, what follows is a call to "strengthen" the regulatory framework as the industry develops.
"This underscores the need to strengthen the regulatory framework to respond to changes in these markets and activities," the report says.
Then the stablecoins were singled out as requiring additional regulation, because:
"Some stablecoins used for payments may not be backed by central or commercial bank money."
Such stablecoins made headlines in May when TerraUSD - the third largest stablecoin - lost its peg to the US dollar, wiping out more than $40 billion in value.
FPC has previously set out its expectations regarding stablecoins, which are used as "monetary instruments". The Committee expects that these cryptocurrencies will actually correspond to electronic money:
"Standards equivalent to the money of commercial banks with respect to the stability of value, the stability of legal requirements and the possibility of repayment at face value in fiat."
Last week, the third meeting of the US-UK Financial Innovation Partnership was held in London, where issues of regulation of cryptocurrencies and digital assets were discussed ahead of the meeting of the financial working group between the two countries later this month. The meeting also discussed stablecoins and digital currencies of the central bank.
https://coin-signal.com/cryptonews/the-bank-of-england-calls-for-a-strengthened-regulatory-framework-for-cryptocurrencies/
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