Central banks seeking to control cryptocurrency risks could pursue strategies ranging from regulation to outright banning the technology, all of which have advantages and disadvantages, according to a new newsletter by the Bank for International Settlements. The newsletter noted that the recent failure of FTX and other crypto companies has “rekindled the debate about the appropriate policy response to address risks in crypto.” The paper explores three strategies: technology ban, containment, and regulation. The authors also said that central banks are in a unique position to offer an alternative to cryptocurrencies. “By fostering robust innovation in (traditional finance), they could contribute to a more efficient monetary system,” according to the newsletter.
Banning the technology would reduce potential harm to the financial system and prevent losses due to cryptocurrency provider misconduct, but would “conflict with the fundamental principles of society,” discourage useful innovation, and could be circumvented in practice, the officials said. authors. Containment, such as limiting the flow of funds between cryptocurrencies and traditional finance, could prevent damage to the economy and avoid giving the technology a regulatory “seal of approval,” but a fully functional firewall may not be feasible and the risks of market integrity persist. Regulation would allow responsible actors to innovate, but it is challenging to map traditional and crypto financial activities, and law enforcement would be challenged to identify the right entities as entry points for regulation.
in a letter Speaking to US regulators last year, the ABA argued that the illicit financial risks posed by digital assets can be managed more effectively by regulating non-bank cryptocurrency companies while allowing banks to participate more fully in digital asset activities, where they will be subject to comprehensive regulation and bank secrecy. Law requirements. “It is critical that such technology is developed responsibly and within a regulatory framework that ensures illicit finance and national security risks are limited,” the association said.
