Regulators Believe Cryptocurrencies Have the Potential to Threaten the Global Economy

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In a report published on October 10, 2018, the Financial Stability Board, an advisory board to the G20 organization, concluded that cryptocurrencies should be monitored and may pose a threat to global financial stability.

FSB Issues Report on Crypto-Asset Markets

Crypto assets such as bitcoin do not pose a threat to financial stability at this time, but monitoring is needed along with possible action to protect consumers, the global Financial Stability Board said. The board has also released an accompanying statement along the report, on the rapidly evolving digital currency market.

According to Reuters, the international group is responsible for coordinating financial regulations for twenty of the planet’s largest economies, known as the G20. The report is a step up from an earlier FSB report released back in July when the board concluded that cryptocurrencies posed a limited threat to global financial stability. In the report, the committee did not recommend any specific course of action for the member states to take.

The October 10 report takes on a completely different tone, with the organization warning about the risks that come with cryptocurrencies. In the 17-page report, the FSB concluded that due to the limited size of the market, crypto assets do not pose a material risk to global financial stability “at this time.” However, the board added that “vigilant monitoring” is needed in light of the speed of market development.

The Cryptocurrency Market Plagued With Risks, FSB Concludes

The FSB’s report includes an assessment of the primary risks present in crypto-assets and their markets, such as low liquidity, the use of leverage, market risks from volatility, and operational risks.

“Based on these features, crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value, or a mainstream unit of account,” the report stated.

If cryptocurrencies become more intertwined with global financial systems and achieve more mainstream adoption as a means of payment, those risks could affect global financial stability moving forward.

The report confirmed an initial assessment the FSB gave to G20 finance ministers and central bank governors in March that there was not enough consensus for global rules, given the different approaches being taken nationally.