NBU sees risks for monetary sovereignty in uncontrolled distribution of crypto assets

KYIV. Sept 20 (Interfax-Ukraine) – The uncontrolled proliferation of virtual assets, especially stablecoins, carries the risk of substitution of the national currency and the emergence of parallel monetary circulation, which will negatively affect the ability of the National Bank to effectively implement monetary policy, ensure the stability of the hryvnia and may pose a threat to the monetary sovereignty of the state.

"To minimize … risks, the National Bank will take a principled position on preventing the narrowing of the scope of the hryvnia as the only legal payment instrument in Ukraine and/or creating opportunities to circumvent the current state regulation," the NBU said in the Monetary Policy Guidelines for 2022 and the medium term published on Friday.

The section NBU Policy in the Sphere of Circulation of Virtual Assets, which appeared for the first time in the guidelines, mentions, in particular, the risk of using virtual assets to bypass the current state regulation and supervision, for example, bypassing currency regulation and uncontrolled flow of capital abroad, which can increase threats to stability functioning of the foreign exchange market, among other risks.

The National Bank also drew attention to the risk of evading financial monitoring requirements in preventing and combating money laundering, as well as the risk of overflow of a part of bank deposits to virtual assets and ousting traditional banking.

Therefore, the NBU, within its competence, intends to pay attention to monitoring and minimizing the risks of virtual assets proliferation posed to monetary policy and financial stability, as well as to establish effective control over their turnover, the regulator said in the document.

The NBU said that now, due to the relatively limited prevalence of crypto assets and their high price volatility they do not have a significant impact on monetary policy and financial stability.

The National Bank also recognized that technological innovations related to virtual assets can open up many promising opportunities: improving access to financial services, increasing competition in the payment services market, and promoting investment attraction. "Therefore, the National Bank supports the need to create civilized conditions for the development of the virtual assets market in Ukraine," the NBU said in the document.

As reported, the Verkhovna Rada on September 8 adopted the bill on virtual assets (No. 3637) with supportive votes of 276 MPs, with the required minimum of 226 votes.