Bank of England Declares Crypto Assets "Present Financial Stability Risks", Bank Starts Sketching Regulatory Framework

BOE Stresses that Crypto Assets Require Effective Public Policy Frameworks

The Bank of England (BOE), told the media on Thursday that it is preparing a regulatory framework to regulate digital currencies. The statements of the Bank of England (BOE) are derived from the Financial Policy Committee (FPC), which mentioned sanctions related to the ongoing Russia-Ukraine conflict. Financial regulators and bureaucrats around the world have been concerned in recent years that Russia could bypass economic sanctions through crypto assets.

The BOE statement on Thursday stated that while crypto assets may not be able to circumvent current sanctions at scale, such behavior underscores the need to ensure innovation in crypto assets is accompanied with effective public policy frameworks... to... maintain greater trust and integrity within the financial system.

BOE says crypto assets could 'Present Financial Stability Risks.' Central Bank is Concerned about Stablecoins

The cryptocurrency economy has been criticized by members of the BOE for a long time. Andrew Bailey, the governor of Bank of England, raised concerns in mid-November about El Salvador legalizing bitcoin as a currency in South America. In December 2013, Sir Jon Cunliffe (the BOE's deputy Governor for Financial Stability) stated that crypto assets could fall to zero.

Financial stability was mentioned in the FPC report that was released on Thursday. The FPC noted that crypto assets pose no direct threat to the stability and health of the UK's financial system. This is due to their small size and interconnectedness to the wider financial system. Further, the FPC added:

Crypto assets could pose financial stability risks if they continue to grow at the same pace as in recent years.

Since the beginning of the Russia-Ukraine conflict in 2014, politicians around the world have either discussed, proposed or even implemented legislation to regulate and research digital currencies. The BOE also wants crypto assets to be under the same regulatory umbrella that traditional financial assets, according to statements from the FPC meeting.

The FPC also discussed stablecoins and how a major crypto asset without a reliable deposit guarantee might pose a threat. The FPC stated that a systemic stability coin that is backed with a deposit from a commercial bank could pose financial stability risks.