Basel Committee Designs Crypto Rules While Deciding Central Bank Digital Currencies are 'Outside the Scope'

The Basel Committee on Banking Supervision (BCBS), consisting of banking regulators from the United States, Europe, and Japan published a report on the prudential treatment of crypto assets. 

The report stated that the growth of cryptocurrencies and related services could negatively impact financial stability and increase risks faced by the banks. It was also suggested that “crypto-assets are an immature asset class given the lack of standardization and constant evolution.” Presenting risks for banks, including liquidity risks, the report added that these assets have “exhibited a high degree of volatility.” 

The Committee believes that cryptocurrencies do not reliably provide standard functions of money and are unsafe to rely on as a medium of exchange and a store of value. The report read, “These types of crypto-assets are not legal tender and are not backed by any government or public authority. Therefore, if banks are authorized and decide, to acquire crypto-assets or provide related services, the Committee is of the view that banks should apply a conservative prudential treatment to such exposures, especially for high-risk crypto-assets.” 

The international regulator suggested that stablecoins may have the potential to become systematically important, although the assets warrant “further assessment and elaboration” before specifying a prudential treatment. The paper also mentioned that central bank digital currencies were outside the scope of the report. 

The issues around cryptocurrencies, as mentioned in the paper, are being discussed across different standard-setting bodies and international fora, including the Committee on Payments and Market Infrastructures, the Financial Action Task Force, the International Organisation of Securities Commissions and the International Monetary Fund.  

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