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Cryptocurrencies Pose No Risk to Global Financial Stability: International Watchdog

Last Updated March 4, 2021 3:48 PM
David Hundeyin
Last Updated March 4, 2021 3:48 PM

A report  published by the Financial Stability Board  (FSB) on Wednesday, claimed that cryptocurrencies do not pose a risk to global financial stability at the present time while suggesting crypto markets need to be monitored.

The report, which focuses on an assessment of the likely implications of crypto-assets for financial stability is a follow-up on an initial assessment carried out in the FSB Chair’s March 2018 letter to G20 Finance Ministers and Central Bank Governors. It also serves as a follow-up to a review of work by standard-setting bodies on crypto-assets published by the FSB in July.

Not a Threat Now, But Should be Monitored

In the report, the FSB – which is backed by the Bank for International Settlements (known as the central bank for central banks)– presented a view of cryptocurrencies as non-ideal means of payment, store of value or unit of account. The release also stated that, cryptocurrencies experience issues with low liquidity, market risks from volatility and operational risks, among other problems.

Summarizing this view, the report states:

“Based on the available information, crypto-assets do not pose a material risk to global financial stability at this time. However, vigilant monitoring is needed in light of the speed of market developments. Should the use of crypto-assets continue to evolve, it could have implications for financial stability in the future.”

According to the report, such risks may include confidence effects and reputational risks to financial institutions and their regulators, risks that come from direct or indirect exposure of financial institutions, risks that arise if crypto-assets became commonly used in payments and settlement, and risks caused by market capitalization and wealth effects.

The report states that if crypto-assets continue to become popular, it might impact financial stability by affecting investor confidence. The report also outlines what it describes as a need for balance between innovation and threats. Specifically, it references cryptocurrencies as an emerging technology at the cutting edge of innovation which could someday pose a threat to the current financial system.

An excerpt from the report reads:

“FSB members have to date taken a wide variety of domestic supervisory, regulatory, and enforcement actions related to crypto-assets. National authorities and standard-setting bodies have issued warnings to investors about the risks from crypto-assets, as well as statements supporting the potential of the underlying distributed ledger technology (DLT) that they rely on to enhance the efficiency of the financial system. These actions are balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity.”

The full FSB report is available here .

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