Kuwait Central Bank cautions against crypto-assets

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The Central Bank of Kuwait has issued a warning to citizens against dealing in crypto currencies amid growing investor concerns. Image Credit: Supplied

Dubai: The Central Bank of Kuwait has issued a warning to citizens against dealing in crypto currencies amid growing investor concerns.

The CBK warning follows the recent wild gyrations in the valuations of world’s leading crypto currencies such as Bitcoin, Ethereum, Dogecoin. There have been reports of Kuwaiti investors incurring heavy losses on their crypto investments in recent weeks.

Digital currencies aren’t real currencies, are highly risky and they pose a threat to the global financial system, the Central Bank of Kuwait has warned in a recent statement, reminding people that these currencies are unregulated and poses huge risks.

The warning by the CBK was part of its Diraya campaign, which translates to ‘Be Aware.’ The central bank has partnered in this campaign with the Kuwait Banking Association and all Kuwaiti banks to raise financial awareness in the country.

Not a ‘currency’

Amid the notable increase in promotion of and calls for investment and dealing in crypto-assets, sometimes referred to as crypto “currencies”, the CBK reiterates that such assets can in no way be compared to real currency.

Cautioning against the investor frenzy around digital assets, CBK warned that such assets can in no way be compared to real currency.

“Real currency is issued by a lawful state as currency and as a symbol of sovereignty, is regulated by state authorities such as central banks or monetary institutions, is considered and accepted as a store of value and legal tender, and serves as a reliable medium for exchange. Furthermore, states strive to protect their real currency and employ policies that guarantee relative stability of the exchange rate against major world currencies,”

The CBK has cautioned against dealing in crypto-assets, such as Bitcoin, Ethereum, Dogecoin, etc. “Such dealings come at a high risk and with an array of negative consequences for dealers in view of the nature of these assets and the high fluctuation in their prices,” the central bank said.

The CBK’s warning comes at a time the cryptocurrency market has suffered its worst crash in over 12 months, with leading cryptocurrencies sliding over 25 per cent that signals the high risk to investors.

Regulator concerns

Like most banking regulators, the CBK believes that digital currencies pose a threat to the global financial system. This is because “the transactions can be carried out through illegal/bogus wallets or organizations, which could lead and direct individuals’ funds beyond the guarantees of official trading protocols/guidelines.”

Digital currencies allow for anonymity, giving criminals an opportunity to engage in money laundering and other unauthorized transactions, according to CBK. Citing the Bank for International Settlements, the central bank added that digital currency platforms are also difficult to supervise and are prone to cyber-attacks.

Last week, China barred financial institutions and payment companies from providing any services related to cryptocurrency transactions. This means that banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement.

Concerned about the volatility and risks associated with cryptocurrencies, many central banks around the world are looking at the option of issuing their digital currencies.

The US Federal Reserve is going to issue a paper shortly that will focus on the benefits and risks of a CBDC, seeking public comment on whether it should go ahead with the plan and flagging the risks etc. Powell said in the video that this “represents the beginning of a thoughtful and deliberative process’ when it comes to thinking about the central bank digital currency (CBDC).

In India, the government has floated The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.It was to be introduced in Parliament’s Budget session earlier this year, but was held up as the government continues discussions with stakeholders.