The Bank for International Settlements once again warns emerging countries about the use of cryptocurrencies. The BIS points out that cryptocurrencies are being sold as an alternative to the financial system, although it did not mention the case of El Salvador. It advised authorities not to automatically classify digital assets as “dangerous” as “technology has been key to driving improvement” in financial services.
The Bank for International Settlements (BIS) warned in its latest analysis that the current cryptocurrency market is “very unstable” and poses risks and concerns for emerging economies and their financial stability.
In the report Financial Stability Risks from Cryptoassets in Emerging Market Economies, the BIS highlighted that cryptocurrencies have an “illusory” appeal because they seem like a quick fix. It said it was “concerned” that crypto is sold in emerging countries as an alternative to the financial system.
The BIS: Cryptocurrencies Amplify Inflation Problems
For the BIS, cryptocurrencies have been promoted as “a substitute” for national currencies in developing countries (although it does not mention El Salvador, it describes it) or with inflation problems, so far from helping, they amplify financial risks. The BIS considers that cryptocurrencies require evaluation in developing countries:
“They must be evaluated from a risk point of view and regulatory perspective like all other assets. This will be even more pressing if crypto assets are more widely adopted by retail investors and if links to the traditional financial system increase.”
The BIS’s animosity towards cryptocurrencies is longstanding and its anti-Bitcoin stances are recognized around the world. In the first quarter, he assumed that the exposure of banks to cryptocurrencies registered a decrease during the year 2022, of 40% worldwide.
A post on X by BIS points out the following:
“Central banks in the Americas find that there are diverse links between #CryptoAsset markets and the traditional financial system. As the degree of interconnectedness becomes stronger, risks can spill over more easily from one to the other: https://bis.org/publ/bppdf/bispap138.htm”
A few months ago, the international organization criticized that other reasons for low crypto adoption are linked to the bear market and the collapse of FTX. In addition, it explained that the banks’ exposure to cryptocurrencies went from 61.7% in 2021 to 15.4% in 2022. The notes were collected between June 10, 2021 and June 30, 2022.
On this occasion, the BIS urged governments in emerging countries to “take action” to address risks, which range from prohibitions, containment and regulation. However, it advised the authorities not to automatically classify digital assets as “dangerous”, since “technology has been key to driving improvement” in financial services.
“While cryptocurrency-related activities have not met their stated goals to date, the technology can still be applied in various constructive ways. Creating a regulatory framework to channel innovation in socially useful directions will continue to be a key challenge in the future.”
The BPI Bets on Tokenization and CBDC
Globally, the BIS’ push for central bank digital currencies (CBDCs) is recognized. In its latest 2023 Annual Economic Report, it highlighted the role that tokenization and CBDCs will play. It stated that the integration of a CBDC would serve to “guarantee a new type of infrastructure for the financial market.”
For the BIS, previous tokenization efforts were hampered by a lack of access to central bank-issued money. Problem that would be fixed by integrating a CBDC.
By Leonardo Pérez
