Six good reasons to be afraid of cryptos. The experts at Bank for International Settlements (BIS) have come to a decisive conclusion: the crypto is dangerous for international financial stability. This is not the first time that this international financial organization has sounded the alarm, having already warned at the beginning of the year that of the dangers inherent in the adoption of such technologies.
These representatives of the world’s largest central banks widely prefer to decentralized crypto-currencies, the central bank digital currencies (CBDCs) issued by them, which would be the only ones able to prevent the world from a predicted financial chaos. Here are the latest warnings from the Financial Stability Task Force, with particular reference to the world’s economies emerging economies. Keep the kids away! It can be a little scary.
Bank of banks has serious concerns about cryptocurrencies
The report we’re going to look at today, was drawn up by a working group from the central banks of the continent american. It includes the central bankers of Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru and the United States, under the direction of a Triumvirate consisting of Andrés Murcia, Anna Kovner and Alexandre Tombini. The purpose of this study was to investigate the possible dangers of the crypto market for the financial stability of emerging economies. And the 51 pages can be summed up in a single sentence from the report:
« There are serious concerns about the ability of emerging economies to control the crypto-asset market and assess the risks to financial stability. »
The major problem associated with cryptos would therefore be the contagion of possible turbulence on this market to the traditional economy. BIS specialists have listed six consequences probable on traditional markets which we’ll look at together.
Each specificity of the crypto market is linked to a potential consequence on the traditional financial system, as can be seen in the animation above. First, there is the price volatility on crypto that could lead to major risk on the traditional market. We then come back to the very structure of the crypto sector where leverage effects could create a lack of liquidity harmful.
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Emerging economies on the front line of financial instability risk
Continuing to turn counter-clockwise on the chart, there’s the replacement of historical currencies by cryptocurrencies, which could weaken the banking sector in favor of obscure international exchanges that would come to take their place.
In fourth place operational risks are highlighted by the expert group. They correspond to the very fragilities of the crypto sector, where individuals, companies or systems could fail, and this could impact the traditional sector through a contagion effect.
In the same vein, the great centralization of the sector in the hands of a few players is also a potential crisis risk. The equity reserves of issuers of stablecoins are, for example, cause for concern, as a major default could have catastrophic consequences.
Finally, the lack of transparency of these same large platforms poses a problem for BIS experts, who take a dim view of the importance taken on by these giants.
For those fluent in English, the full report can be found at website of the institution.
The document also details all the transmission mechanisms and risk catalysts. As a final word of caution, the authors advise us to be wary of the idea that is beginning to circulate that « cryptocurrencies are a refuge from volatile national currencies ».. But as current events are sometimes capricious, and as a thumbing of the nose at this remark, Argentina’s pro-Bitcoin candidate, Javier Mileiwho was still recently in the lead in the pollshas just won his party’s primary. But hush! Don’t tell the central bankers! They might have nightmares.
To store your cryptos, nothing beats a Ledger wallet. The Nano S and Nano X offer security and ease of use. In fact, they are compatible with the vast majority of cryptos and networks. They are an absolutely essential alternative to all the exchanges that offer to hold your assets for you. Remember, « Not your keys, not your coins »!