The Bank for International Settlements has published a paper that declares cryptoassets , promoted as the future of finance, have not lived up to their promises and are adding to financial risks in developing economies. According to the report, cryptoassets are not simplifying financial challenges as they claim, particularly in emerging markets. Instead, they are increasing financial risks in less developed economies.
The paper examines the potential consequences of greater integration between crypto and traditional financial markets, focusing on the financial stability risks. The report underscores the need to evaluate cryptoassets from a risk and regulatory perspective, similar to how other assets are assessed.
The Risks
The risks associated with cryptoassets are numerous and arise from various aspects of these markets, including their nature, structure, composition, and function.
To address these challenges, the report suggests that national authorities collaborate to define the necessary data for effective market monitoring. This involves identifying crucial connection points with financial institutions and core market infrastructures. However, this approach might compromise the anonymity that some individuals and entities value in crypto assets.
The paper proposes several guidelines for regulating and supervising cryptoasset markets, which include bans, containment measures, and regulation. An outright ban might not be feasible due to the offshore and pseudo-anonymous nature of these markets. Instead, it could lead to less transparency and predictability.
Containment measures, which involve controlling flows between traditional financial systems and cryptoassets, face similar challenges as bans. Although many consider regulation a more feasible choice, it shifts attention to differing motivations across jurisdictions and underscores the need for disclosing data gaps.
Earlier this year, the European Union’s financial services chief urged the adoption of EU rules for cryptoassets globally to ensure consumer protection and financial stability.
A BIS survey conducted last year also reveals that the report notes the expectation of around 24 central banks from both emerging and advanced economies introducing digital currencies by the end of the decade.
