The Bank of England (BOE) is on the verge of sketching out Britain’s first regulatory framework for cryptocurrencies.
According to a Thursday Statement by BOE’s Financial Policy Committee (FPC), although the crypto sector remains fairly small in comparison to traditional finance systems, its rapid growth could pose a risk to Britain’s financial stability in the future, necessitating early attention and response.
“If the pace of growth seen in recent years continues, and as these assets become more interconnected with the wider financial system, crypto-assets and DeFi will present financial stability risks.” Read a statement by the FPC.
To this end, The FPC noted that it aimed at ensuring that the Uk financial yet was well prepared for the risk posed by crypto-assets and DeFi by ensuring that ‘risks to financial stability arising from those markets and activities are mitigated.’
“The mitigation of financial stability risks from crypto-assets and associated markets is essential to ensuring the benefits from new technologies can be realised sustainably.” It went on.
The statement comes even as the dark side to cryptocurrencies increasingly comes to light, albeit being generally useful. The fear of Russia circumventing sanctions through cryptocurrencies has also become a real threat even as Russia mulls the idea of accepting natural resource payments from “unfriendly nations” in Bitcoin.
The BOE has considered cryptocurrencies as not being ‘money’ issuing a wide range of warnings against their use, citing the absence of regulation and monetary protection. In the recent past, however, HM Revenue & Customs (HMRC), UK’s government department responsible for collecting, paying, administering, and enforcing taxes has set out a brief on tax requirements for cryptocurrencies, stating that gains or losses on them are subject to capital gains tax, due to their property-like nature.
Although Britain has had a measured approach towards cryptocurrencies, its interest in regulating the nascent sector has matured in the post-Brexit financial landscape, as digital currencies increasingly become seen as the future of finance. The fear of missing out (FOMO) on such a valuable innovation can also be drawn up to BOE’s latest move, even as countries such as Russia, El Salvador the U.S., run against the clock to become leaders of the nascent industry.
With cryptocurrencies growing tenfold between February 2020 and November 2021, to have a global crypto market cap of $2T today or 0.4% of global financial assets, it suffices to state that the finance ministry will start paying more attention to crypto regulation, with the issue of a complete ban on cryptocurrencies being out of the question.