Crypto Is Rife With “Financial Stability Risks” BIS Issues Warning

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Key Insights

  • According to the BIS, Crypto assets have amplified financial risks in emerging market economies (EMEs).
  • Crypto assets have been marketed as a quick and easy solution to the financial problems of EMEs, but this is illusory.
  • Central banks and regulators need to strike a balance between regulating crypto assets and not driving them underground.
  • New regulations should be based on sound risk management principles.
  • Central banks and regulators should leverage innovation and technology to improve their financial institutions.

This shouldn't be new.

While crypto presents several more avenues to make a profit, it is several times riskier than other kinds of investment assets.

This is one of the core things to understand as a trader, investor or even a whole country, before becoming involved in the market in any way.

However, it always seems like a new concept whenever anyone highlights the apparent pitfalls of crypto involvement, and how easy it is for things to go wrong after badly thought-out policies and decisions.

According to a recent report published this week, the Bank for International Settlements (BIS), has raised new concerns about the appeal and risks of crypto assets in emerging market economies (EMEs).

Cryptos Like Bitcoin Have "Amplified Financial Risks", Bis Says

The study was conducted by central bank members of the BIS from, including central banks from the US, Mexico, Peru, Argentina, Chile and several others.

The +50 page report made clear that the opinions presented were those of the writers and "not necessarily the views of the BIS."

However, its contents still proved to be interesting.

For example, the report mentions that in less developed countries, cryptocurrencies like Bitcoin have "amplified financial risks" rather than reducing them.

As a result, they should be regulated and controlled in the same way as other assets like stocks, securities, indexes and others.

The study's authors claim that cryptocurrencies like Bitcoin have the "illusory appeal" of offering a quick and easy answer to the financial problems that developing countries face.

These cryptocurrencies have been marketed as low-cost payment options and as replacements for fiat in nations with high inflation or volatile exchange rates.

The research states that these cryptocurrencies have increased the risks that developing economies face in terms of financial stability and that the relevant authorities have been forced to enforce a range of policies to manage such concerns.

These policies also often range from outright prohibitions to containment and even regulation.

The Path To Balance

At the same time, the study mentions that there are also problems if central banks and regulators respond with too much force.

Doing this, the paper says, may push crypto activity into the shadows.

The paper also emphasized the value of being reasonable when enforcing regulation.

Not only will outright prohibitions or severe laws drive crypto underground as mentioned above, but it may also make it harder to influence the accountable stakeholders in the sector.

The paper adds that the only reason why new inventions are "risky" is that they are different from established systems, (which is true).

As a way to tackle this, the paper suggests that the relevant authorities leverage innovation and technology to improve their financial institutions.

Ripple's Partnership With The BIS In August

Investors have shied away from XRP as a result of Ripple's [XRP] intense and long tug-of-war with the SEC.

However, this doesn't stop the XRP issuers.

Ripple has continued to find innovative ways to stay ahead. And as it turns out, reports mentioned that the company recently partnered with the Bank for International Settlements (BIS).

Right after the CEO of MasterCard disclosed that the company will be collaborating with several blockchain/Web3/payments players, including Ripple for its CBDC partner program, something just as big happened for Ripple.

According to this announcement tweet, the Cross-Border Payments Interoperability and Extension Taskforce, (a division of the BIS), recognized Ripple as an official partner on August 20.

This paints a pretty bullish picture for XRP in the charts, as investors continue to wait for bullish confirmation signals.

Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

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