Why in the News?
Globally, stablecoins face regulatory scrutiny; the Bank of England has proposed ownership limits (£10k–£20k for individuals, £10m for businesses) to reduce banking system risks.
About Stablecoins:
- Definition: Cryptocurrencies designed to maintain stable value, usually pegged to fiat currency, commodities, or other crypto.
- Role: Provide price stability, often used to park profits or enable fast, low-cost cross-border transactions without intermediaries.
- Use: Rarely for retail payments; mainly act as a bridge asset within crypto markets.
- Types:
- Fiat-backed (e.g., Tether/USDT).
- Commodity-backed (gold, silver, oil).
- Crypto-backed (collateralised by other cryptos).
- Algorithmic (peg maintained via programmed supply-demand adjustments).
- Example: Tether (USDT) backed in theory by cash and US Treasuries.
- Market Growth: Could rise tenfold to $2 trillion by 2028 (Standard Chartered, Apr 2025).
Risks Associated with Stablecoins:
- Financial Stability Risk: Vulnerable to bank-run scenarios. Example: TerraUSD collapse (2022) lost 60% peg value.
- Banking System Impact: Can drain deposits from banks, reducing lending capacity.
- BIS Concerns:
- Singleness: Deviations from fiat peg in secondary markets.
- Elasticity: Limited expansion due to reserve requirements.
- Integrity: Weak KYC, enabling money laundering, terror financing.
- Cybersecurity: DeFi-linked stablecoins prone to hacking and theft.
- Regulatory Gaps: Lack of uniform global standards leads to fraud and accountability issues.
Global Regulatory Approaches:
- United States, GENIUS Act (2025): Only insured financial institutions may issue; must hold 1:1 low-risk reserves; AML/CFT compliance required.
- European Union, MiCA (2024): Regulates E-money Tokens (EMTs) and Asset-Referenced Tokens (ARTs); issuers restricted to authorised EU firms; strict reserve and consumer protection.
- Hong Kong, Stablecoin Ordinance (2025): Licensing by HK Monetary Authority; full high-quality liquid reserves; strict audits and AML/CFT rules.
- United Kingdom, Bank of England: Proposed ownership limits to prevent rapid deposit outflows and maintain financial stability.
| [UPSC 2016] With reference to ‘Bitcoins’, sometimes seen in the news, which of the following statements is/are correct?
1. Bitcoins are tracked by the Central Banks of the countries. 2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address. 3. Online payments can be sent without either side knowing the identity of the other. Select the correct answer using the code given below. Options: (a) 1 and 2 only (b) 2 and 3 only* (c) 3 only (d) 1, 2 and 3 |
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