The consortium of global bank regulators, popularly referred to as the Basel Committee has differentiated between Central Bank digital currencies and cryptocurrencies i.e. Bitcoin, saying the latter is prone to raise financial stability concerns and make banks prone to risks.
Today, in the first of its kind strongly worded warnings against cryptocurrencies to banks across the globe, the Basel Committee affirmed the “continued growth” of Bitcoin and other cryptocurrencies trading platform, but warned that crypto-assets do not “reliably provide the standard functions of money”, and therefore posits that they are not safe to use as a store of value or a medium of exchange.
The committee, which is the major global standard setter for the prudential regulation of banks, pointed that crypto-assets are not legal tender, and are not recognized by Government or public authority.
“Crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardisation and constant evolution,” the warning message points.
The Basel committee, therefore, said cryptocurrencies have many risks: liquidity risk; credit risk; market risk; operational risk, money laundering and terrorist financing risk; and legal and reputation risks.
The committee then warn banks who may be interested in cryptocurrencies to do due diligence, have a clear and robust risk management framework, , publicly disclose any material crypto-asset exposures, and inform supervisory authority of actual and planned crypto-asset exposure or activities in the bank.
“Crypto-assets differ from central bank digital currencies,” the committee ended.
Cryptocurrencies Are Not Legal?
Although some countries refer cryptocurrencies as an illegal assets, some do not. The definition of crypto in some parts of the world makes its legal for people to use, however, they are not backed by government regulations.