The Bank for International Settlements (BIS) has issued a warning to Central Banks regarding crypto-related financial ecosystem risks.
In a recent paper, the Bank for International Settlement (BIS) warned emerging economies of the potential financial hazards of crypto-related investments.
Concerns have been raised by the international financial institution regarding the ability of these emerging economies to monitor the digital asset market and assess their financial stability risks.
BIS Report, Outlines Cryptocurrency Dangers
Tuesday’s Consultative Group of Directors for Financial Stability (CGDFS) report amplified these concerns. The report titled ““Financial Stability risks from crypto assets in emerging market economies” was conducted by BIS member central banks within the CGFDS.
Participating in the research were the central banks of Argentina, Brazil, Chile, Canada, Colombia, and the United States. Specifically, the report explained that cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and others are frequently promoted as “illusory appeal” to financial problems.
According to the study, these assets “have been promoted as low-cost payment solutions, as alternatives for accessing the financial system and as substitutes for national currencies in countries with high inflation or high exchange rate volatility.”
BIS Advocates Caution Regarding Cryptocurrency
Reportedly, numerous authorities have examined this class of assets and discovered that they pose certain risks, mainly due to their volatility. This knowledge has prompted some jurisdictions to implement policies to mitigate these hazards.
Some nations, such as China, have resorted to explicit bans on the asset class, while others have attempted to regulate the industry. However, the document clarified that these authorities cannot engage in an “excessively prohibitive manner” because doing so carries risks.
Moreover, adopting such a strategy could drive crypto assets into the shadows, contrary to the industry’s goals. There is still the belief that crypto and blockchain technology could be utilized more constructively.
As a result, the BIS has exhorted local regulators to implement selective bans, containment, and regulation of specific crypto assets. In addition, these regulators are urged to create distinct activity-based and entity-based regulatory mandates.
