Crypto amplified financial risks in emerging markets: BIS papers
Cryptocurrencies like Bitcoin (BTC) have failed to reduce but rather have “amplified financial risks” in less developed economies, according to a new study published by the The Bank for International Settlements (BIS).
On Aug. 22, the Consultative Group of Directors of Financial Stability (CGDFS) released a new report on cryptocurrencies, titled “Financial stability risks from crypto assets in emerging market economies.”
The study was conducted by BIS member central banks within the CGDFS, including those in Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru and the United States. The document emphasized that the views expressed are those of the authors and “not necessarily the views of the BIS.”
According to the authors of the study, cryptocurrencies like Bitcoin hold out the “illusory appeal” of being a quick solution for financial challenges in emerging markets.
“They 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,” the study reads. As cryptocurrencies allegedly extended the financial stability risks of emerging markets, authorities have many policy options to address those risks, ranging from outright bans to containment to regulation, the report notes.
At the same time, there are also risks if central banks and regulators react in an “excessively prohibitive manner,” the paper reads, adding that such policies may drive crypto activities into the shadows. The authors added:
The central banks mentioned Bitcoin exchange-traded funds (ETFs) as one of major potential market risks in emerging markets, as such products are able to lower the barriers to entry for
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