According to The Financial Stability Board, the growing appetite of large institutions and VC firms for cryptocurrency exposure could prove counterproductive not only for said financial giants but for the entire world.
The watchdog called for exercising greater control over operations that involve significant money investments to avoid a potential financial crisis on a global scale.
The Global Financial Stability Could Be At Risk
In a report published on Wednesday, February 16, 2021, the FSB explained that essential precautions should be taken to ensure the stability of the international financial system in the face of the risks of massive investments in fast-growing technologies with little guarantee of long-term success, such as cryptocurrencies.
“If financial institutions continue to become more involved in crypto-asset markets, this could affect their balance sheets and liquidity in unexpected ways… If the current trajectory of growth in scale and interconnectedness of crypto-assets to these institutions were to continue, this could have implications for global financial stability,”
The FSB notes that despite the accelerated growth of cryptocurrencies, they do not actually account for a significant portion of the money being moved in traditional financial markets. However, they recognize that should the growth rate that has been seen so far persist, there could be a major shift in the conventional financial system – which would, in turn, have severe implications for global financial stability.
Contrary to what many might point out, the FSB mentions that the industry is full of players who don’t really understand how cryptocurrencies work and points to the increase in money laundering, ransomware, and cybercrime as concerns. But in general terms, the report focuses on other risks and vulnerabilities more related to the market aspect, such as liquidity mismatch, unbacked stablecoins, increased use of leverage, and the opacity of regulatory oversight.
The FSB Won’t Stop Monitoring the Crypto Industry
The FSB is an international organization created in 2009 as the successor to the Financial Stability Forum. It was created by the G7 to coordinate policies between the finance ministries and central banks of the world’s major economies. It is currently a multilateral institution made up of 24 countries and other multilateral organizations such as the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, the Organization for Economic Cooperation and Development, and the World Bank.
The FSB says it will continue to monitor the development of the crypto ecosystem globally, sharing information and ideas with other regulatory bodies to channel the industry’s growth in a healthy way.
Among the issues it considers a priority, it said it will be looking at the implications of the adoption of Bitcoin and Ether as non-fiat-based means of exchange, as well as the so-called “global stablecoin” arrangements, which it has been monitoring since 2020.