- The Bank for International Settlements has warned about the financial risks associated with crypto assets.
- Central banks in emerging economies have taken note of the increased financial risk posed by crypto.
- The BIS believes that consistent enforcement of regulations and laws can make crypto safer.
The Bank for International Settlements (BIS) recently stated that cryptocurrency assets posed financial risks in emerging economies. The comments were part of a 50-page research paper published by the BIS earlier today, that explored approaches to regulating crypto assets. The BIS is an international financial institution consisting of central banks from around the world.
According to a recent report by the Financial Times, the BIS found that crypto assets amplified risks to financial stability rather than achieving their goal of providing a low-cost payment solution. The Consultative Group of Directors of Financial Stability, which features representatives from Central Banks of the U.S, Chile, Mexico, Canada, Argentina, and Brazil, stated that crypto had failed to become a substitute for national currencies in nations with high inflation.
Speaking on the progress of crypto, the Consultative Group of Directors of Financial Stability stated:
Crypto assets have so far not reduced but rather amplified the financial risks in less developed economies. Therefore, they should be assessed from a risk and regulatory perspective like all other assets.
The BIS disagreed and stated that novel solutions to payment challenges like crypto assets should not be classified as dangerous assets due to being different from traditional payment methods. However, the central bank group added that the appeal of crypto and its purported utility in finance were “illusionary”.
The BIS stated in its report that crypto assets increased the risk to financial stability in emerging market economies. The central bank group added that the weaker legal system of such economies likely made it harder to enforce contracts, but inconsistent enforcement of regulations paved the way for confusion and created market risks.
Of the top 20 countries in terms of crypto adoption, only two were emerging economies. Meanwhile, countries with rampant inflation including Venezuela, El Salvador, and Nigeria became a testing ground for crypto use cases in the real world. The lack of financial literacy and technological knowledge also made crypto adoption a challenge in such economies.
