The Bank of Israel has published regulatory principles for stablecoin activity in the country, detailing how it aims to supervise cryptocurrencies tied to the value of other assets like the US dollar.

The recommendations seek to allow the use of stablecoins while managing inherent risks and adjusting consumer protections and prudential requirements.

The document requires stablecoin issuers to hold reserves matching the amount of crypto in circulation, covering "100% of its liabilities to the coin holders," in line with other jurisdictions like Hong Kong, which plans to regulate asset-backed stablecoins by June 2023.

The proposed rules also recommend that larger stablecoins with "systemic importance" be licensed by the Banking Supervision Department, while the Capital Market Authority should supervise others.

Payment-focused stablecoins, meanwhile, should be overseen by the payment systems oversight function at the Bank of Israel. The recommendations don't apply to algorithmic stablecoins like TerraUSD, which the central bank said are not used widely for payments but could be prohibited if they become too popular.

The proposed rules will be open to public comment until March 15.