A recent report from the Bank for International Settlements (BIS), considered the central bank of central banks, warns of the risks associated with cryptocurrencies. The organization speaks of the importance of regulating the sector, rather than imposing bans.
The report, titled “Financial Stability Risks of Crypto-Assets in Emerging Economies,” addresses the evolving digital financial landscape and the rapid growth of cryptocurrencies, highlighting the risks associated with it in traditional financial markets.
The BIS states that ‘cryptoactive substances’ are present “Significant risks to financial stability”including market, liquidity, credit and operational risks, bank disintermediation and capital flow risks.
Such risks are particularly relevant in emerging economies, where financial markets are less developed and regulators have less experience in dealing with cryptocurrencies.
Regulators Beware of cryptocurrencies
The organization talks about vulnerabilities in cryptocurrency markets that add to the risks and examines the transmission channels through which they can affect financial stability.
O BIS suggests that regulators in emerging economies should be cautious about cryptocurrencies and take measures to limit the risks.
According to the Bank for International Settlements, regulatory authorities in emerging economies should take an activity-based rather than an entity-based approach.
This means regulators should focus on regulating cryptocurrency-related activities, rather than regulating entities that issue or trade digital assets.
The report also highlights the importance of addressing data gaps in the market. Regulators in emerging economies often have limited access to industry data, making it difficult to assess the risks associated with it.
The BIS claims that the authorities Regulators in emerging economies should work together to create a shared repository of datawhere important information such as cryptocurrency-related activities and exposures to financial institutions can be stored.
“This would allow for better monitoring of cryptoassets’ risks and a more accurate assessment of their contribution to financial stability.”
Prohibition does not solve
Going forward, the 51-page report also highlights the importance of closer international coordination in cryptocurrency regulation.
The BIS proposes that regulators in emerging economies work with other international regulators, such as the BIS, the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), to develop a common taxonomy of crypto-assets and activities associated with them. related.
Moreover, the BIS says so one option for regulating the cryptocurrency industry is a complete ban. However, suggests that a ban may not workgiven the decentralized and pseudo-anonymous nature of cryptocurrencies.
Still talking about a total ban on cryptocurrencies, the BIS claims that such a measure could create panic in the industry and lead to the loss of potential innovation gains.
Another option is containment, which involves controlling the flows between cryptocurrency markets and traditional financial systems or restricting their connections.
However, the report suggests that such a strategy fails to address the inherent vulnerabilities of cryptocurrency markets and would still result in risks to financial stability.
Ultimately, the BIS concludes that regulators in emerging economies should take a balanced approach to regulating cryptocurrencies, taking into account the risks associated with it, as well as the potential benefits of innovation.
“Regulatory authorities need to work together internationally to develop a common taxonomy of crypto-assets and crypto-related activities and address data gaps in crypto-asset markets. In addition, regulators should consider financial education as a means of reducing crypto-asset risk by raising awareness of the vulnerabilities and risks associated with these assets. says BIS.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
