- According to the report, the current market conditions call for enhanced regulatory and law enforcement frameworks to address developments in crypto asset markets and activities.
- BoE states that a systemic stablecoin backed by a deposit with a commercial bank would introduce “undesirable financial stability risk,”
The Bank of England(BoE) published the Financial Stability Report on Tuesday. In the report, BoE called for better regulation of cryptocurrencies, citing the current market volatility. According to the report, the crypto market vulnerabilities include liquidity mismatches leading to run dynamics and fire sales, leveraged positions being unwound, and amplifying price falls.
The current market conditions call for enhanced regulatory and law enforcement frameworks to address developments in crypto-asset markets and activities, notes BoE. The central bank states that “crypto asset valuations have fallen sharply,” from nearly $3 trillion last year to $883 billion. The report adds that even though the wipeout did not pose risks to financial stability overall, tougher laws need to be implemented to protect the wider financial system in the future.
The collapse of TerraUSD coupled with crypto lending majors like Celsius freezing withdrawals have made monetary authorities worldwide increasingly wary of cryptocurrencies. In the report, BoE expressed its concerns with stablecoins. A systemic stablecoin backed by a deposit with a commercial bank would introduce “undesirable financial stability risk,” according to the report. The central bank notes that investor confidence in stablecoins has been shaken owing to the TerraUSD crash.
In April, the U.K. government announced plans to become a global crypto-asset technology hub, with using stablecoins as a recognized form of payment.” Since then BoE has said that it would intervene to direct and oversee collapsing stablecoins. England’s Central Bank also expects stablecoins to meet the same stability and redemption standards as commercial bank money used in payment systems.
BoE has been open about its stance and its concerns with crypto currencies. In December, it warned investors that the crypto industry could pose a threat to the established financial system. Bank of England Governor Andrew Bailey have made public statements suggesting that crypto currencies has no ” intrinsic value” on multiple occasions.
Apart from the Bank of England, central banks around the world are also looking to regulate cryptocurrencies. Recently, the Monetary Authority of Singapore stated that it is considering imposing additional safeguards against crypto trading. European Union-which earlier England was a member, is also working on making a comprehensive regulatory framework for digital assets in the region.