The international banking watchdog Basel Committee for Banking Supervision (BCBS) is promoting stricter regulations for stablecoins to classify them as less hazardous than unbacked cryptocurrencies such as Bitcoin.
This action is a major development in the field of regulating digital currencies. The committee’s most recent recommendations ensure that the reserve assets supporting stablecoins have qualities like short-term maturity, high credit quality, and low volatility to satisfy holders’ expectations for instant redemption.
The global financial regulatory community is becoming more aware of and concerned about the possible risks that stablecoins may pose, which is reflected in the proposed standards.
Stablecoins are cryptocurrencies whose value is usually tied to stable assets like fiat currencies or gold, as opposed to free-floating digital assets like Bitcoin.
The BCBS is examining the true stability and dependability of these tethered assets, though, and has put forth a list of 11 requirements that stablecoins must fulfill to be classified as lower-risk Group 1b.
The proposals from the BCBS come as cryptocurrency scrutiny is growing. The committee has always taken a cautious approach to cryptocurrencies, recommending a maximum risk weight of 1,250% for digital currencies such as Bitcoin.
According to the high-risk weight, banks are required to maintain capital equivalent to their exposure to these digital assets and to allocate no more than 2% of their core capital to these assets. The BCBS does not, however, have any plans to modify these current standards.
Also Read: Basel Committee Proposes Crypto Disclosure Rules For Banks
