BIS Now Permits Banks To Hold 2% of Reserves in Cryptocurrency

• Financial institutions may now keep 2% of their reserves in crypto as per the latest policy.
• Effective January 1, 2025, this policy will govern defining and handling of crypto assets.

The Prudential Treatment of Cryptoasset Exposure Report, December 2022, was recently published by the Bank for International Settlements (BIS). According to the latest policy announcement, financial institutions may now keep 2% of their reserves in cryptocurrency.

The new policy, which allows banks to store 2% of their reserves in cryptocurrency, was created after a second consultation on the prudential supervision of banks’ exposure to crypto assets was held over the summer.

Option of Diversified Portfolio

Effective January 1, 2025, this policy will govern the many elements of defining and handling crypto assets. The BIS announced in June that banks may keep no more than 1% of their reserves in cryptocurrency.

Furthermore, the agreement stipulates that the proportion of Tier 1 capital allocated to exposures to Group 2 cryptocurrencies cannot exceed 2%. There is a dedicated part of the report devoted to reserves where these criteria are discussed. Also, thanks to this breakthrough, finance institutions may expand their resources by investing in cryptocurrencies, having a diversified portfolio.

On the contrary, in Budget 2022, the Indian government announced a flat 30% tax on earnings from cryptocurrency transactions, in addition to a tax deducted at source (TDS) of 1%. This is despite the fact that cryptocurrencies are still unregulated in India.

RBI believes that it should be prohibited. Clearly, taking a stance. The government thinks it should be taxed until laws are made about it. If it was just banned in India, it would leave the door open for cross-border transactions via wallets as per RBI. With the recent BIS update, time will tell if financial institutions in India will invest the allowed share in cryptocurrencies.