Basel Committee Finalizes New Standards, Allows Central Banks To Hold Crypto In Reserves

The Basel Committee on Banking Supervision has finalized a new standard for the treatment of banks' exposures to crypto assets.

What Happened: Central Banks can now hold up to 2% of their reserves in cryptocurrencies.

The Committee's decision comes after consultations and deliberations on the evolving nature of digital assets and their implications for the global banking system.

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The new framework is slated for implementation on Jan. 1, 2025.

Two Groups: Banks are required to classify crypto assets into two distinct groups:

• The first will include tokenized traditional assets and cryptoassets with effective stabilization mechanisms.
• The second will consist of those that do not meet these conditions because they pose higher risks, and will be subject to a newly prescribed conservative capital treatment.

Bank exposure to the second group is capped at 2% of the bank’s Tier 1 capital. The general recommendation is to maintain it below 1%.

Why It Matters: The inclusion of cryptocurrencies in central bank reserves is anticipated to significantly boost market confidence in digital assets.

It also signals a growing recognition of the potential role of digital assets in the global financial system.

Whether this move encourages regulatory bodies worldwide to develop clearer guidelines and frameworks for cryptocurrency operations, remains to be seen.

What's Next: Banks will need to develop robust mechanisms to effectively manage the unique risks associated with crypto assets, including market volatility and technological risks.

Additionally, financial institutions must ensure operational readiness to handle crypto asset-related activities and navigate the complex regulatory landscape governing digital assets, which varies across jurisdictions.

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