Key Points:
The BIS Innovation Hub will put more of an emphasis in. 2023 on enhancing payment systems and experimenting with Central Bank Digital Currencies (CBDC), on establishing the direction of financial regulation and supervision, and on safeguarding and greening the financial industry. Project Pyxtrial, a fresh experiment being started by the Hub’s London Center to allow systematic monitoring of stablecoins, is also a part of this year’s Work Programme.
Stablecoins, which promise the stability of the U.S. dollar or the euro, are the foundation of decentralized finance (DeFi) applications, which regulators haven’t yet figured out how to regulate. While some central bankers view CBDCs as a more secure alternative to volatile private cryptocurrencies, stablecoins are the foundation of DeFi applications.
“Most central banks lack tools to systemically monitoring stablecoins and avoid asset-liability mismatches. The project will investigate various technological tools that may help supervisors and regulators to build policy frameworks based on integrated data,” the BIS said in a statement.
The BIS, sometimes known as the central bank of the world, has long been dismissive of cryptocurrencies, comparing bitcoin in the past to both a ponzi scheme and a market bubble.
“I would assume that the industry will learn from these failures and they will come up with new things,” Cecilia Skingsley, the new head of the BIS ‘Innovation Hub’, told Reuters.
Regulators are also on heightened alert in light of revelations from 2021 on the composition of stablecoin reserves like Tether’s USDT and the algorithmic stablecoin UST’s collapse last year. The initiative demonstrated that the BIS, which consists of 63 central banks, has innovation centers located all around the world that are engaged in 15 various CBDC-related studies.
Other standard setters such as the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures are also working on cryptocurrency and stablecoin regulation.
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