The Bank for International Settlements (BIS) released a study, conducted by its Consultative Group of Directors of Financial Stability (CGDFS) that includes member central banks from countries like Argentina, Brazil, Canada, the U.S., and more. The report titled “Financial stability risks from crypto assets in emerging market economies,” argued that cryptocurrencies, specifically Bitcoin, have not reduced financial risks but rather amplified them in emerging markets.
The study suggests that while cryptocurrencies have been pitched as low-cost payment alternatives and solutions for financial inclusion, they have heightened the financial stability risks in these markets. The authors highlight that authorities have multiple policy options, from complete bans to containment and regulation. However, the report also warns against “excessively prohibitive” regulatory measures that could push crypto activities underground.
Furthermore, the report identifies Bitcoin exchange-traded funds (ETFs) as potential market risks, especially for “less sophisticated investors.” Among the outlined concerns are situations where ETF investors don’t own actual crypto assets but could face significant losses with Bitcoin’s price drops. There’s also worry that crypto futures-based ETFs might increase price volatility.
The specifics regarding which emerging markets are in focus remain vague, as some countries like China and Pakistan already have restrictive crypto regulations. It’s also uncertain how the situation compares to more developed nations.
While the BIS has shown skepticism about cryptocurrency adoption, it views central bank digital currencies (CBDCs) favorably, seeing them as foundational for future financial innovations.
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