On Thursday, the Financial Policy Committee of the Bank of England disclosed that they are working on developing a regulatory framework for digital assets. The central bank also made a reference to the sanctions that have been imposed because of the war between Russia and Ukraine in the statements. Bureaucrats and financial regulatory authorities all over the world have become increasingly concerned in recent times that Russia could take advantage of crypto assets to bypass the economic sanctions that have been imposed. The press statement of the BOE said that it was unlikely for crypto assets to provide Russia with a feasible way to get around sanctions at a large scale for now, but there was a possibility they could do so.
Therefore, it is a must to ensure that there are effective public policy frameworksthat can accompany innovation in crypto assets for maintaining the integrity and trust in the financial system. The crypto economy has been highly criticized by some members of the Bank of England for quite a while. Last year in mid-November, Andrew Bailey, the Governor of the Bank of England, had expressed his concerns about the adoption of bitcoin as legal tender in El Salvador. Sir Jon Cunliffe, the deputy governor for financial stability for the central bank, said in the following month that prices of crypto assets could drop to zero.
On Thursday, the report of the FPC talked about financial stability. The committee of the central bank noted that the FPC is assessing the risks to the financial system’s stability and it has concluded that these are currently limited. This is because their size remains limited for now and they are not that connected with the wider financial system. However, the FPC said that if they continue to grow at the same pace, and if they become interconnected with the overall financial system, then these crypto assets could pose a risk to the stability of the financial system.
Since the conflict between Russia and Ukraine began, politicians and lawmakers all over the globe have been discussing, developing, or even proposing laws aimed at regulating and researching digital currencies. The FPC’s statements on Thursday show that the BOE wants to classify crypto assets in the same category as it does traditional financial assets. Not only does the FPC plan on developing a regulatory framework that would govern digital assets, it has also mentioned stablecoins.
The FPC said that a major stablecoin that does not have a reliable deposit guarantee could turn out to be a risk to the UK’s financial system. According to the committee, if they introduce a systemic stablecoin, which is backed through a deposit mad with a commercial bank, it would result in significant risks to the stability of the financial system. All of this talk about crypto has been brought forward because of the Russian-Ukraine conflict and the possibility of the former using cryptocurrencies to evade the tough economic sanctions that have been imposed by Western nations due to its actions.