Cryptocurrencies are increasing the financial risks of emerging economies, according to a new report published by the global central banking umbrella organization known as the Bank for International Settlements (BIS).
The report says cryptocurrencies cannot solve developing countries’ financial challenges, despite some claiming that digital assets can address issues such as high payment transactions and high inflation.
The report is the work of the Consultative Group of Directors of Financial Stability (CGDFS) of the BIS, which includes Brazil, Canada and the United States. The views expressed in it are “not necessarily the views of the BIS.”
says the report,
“Crypto-assets have the illusory appeal of being a simple and quick solution to financial challenges in EMEs (emerging market economies). They have been promoted as cheap payment solutions, an alternative to access the financial system and a substitute for national currencies in countries with high inflation or high exchange rate volatility.
So far, however, crypto-assets have not reduced financial risks in less developed economies, but rather increased them. Therefore, like all assets, they must be assessed from a risk and regulatory perspective. This will become even more urgent as crypto assets are more widely adopted by retail investors and as ties to the traditional financial system increase.
The report also says that developing countries have a number of options to mitigate the perceived negative effects of cryptocurrencies. However, the report warns that an outright ban on digital assets could be too harsh and have unintended consequences.
“Authorities are faced with a number of policy options to address risk in crypto assets, ranging from outright bans to containment to regulation. Bans and restrictions – if effective – can prevent risks to financial stability from arising. At the same time, there are risks if central banks and regulators react too restrictively.
For example, activities can be shadowed and it can be more difficult to influence responsible actors in the sector. More generally, new approaches should not automatically be labeled ‘dangerous’ simply because they are different.”
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