PARIS: Virtual currencies and so-called crypto assets do not, yet, pose a systemic risk, the body which makes recommendations about the financial system said in a study released Sunday.
“The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time,” said the Financial Stability Board.
“The market continues to evolve rapidly, however, and this initial assessment could change if crypto-assets (notably digital currencies) were to become significantly more widely used or interconnected with the core of the regulated financial system.”
Last year saw the meteoric rise of hundreds of virtual currencies led by bitcoin, which late last year was fetching almost $20,000 per unit before a slump to around $8,000 currently.
Financial concerns revolve primarily around those computer-generated assets’ long-time association with so-called ‘dark web’ transactions for illegal goods and services including drugs and weapons.
“The FSB has undertaken a review of the financial stability risks posed by the rapid growth of crypto-assets,” said the report published ahead of a meeting of G20 finance ministers and central bank governors in Buenos Aires starting Monday.
The FSB warned that without “material improvements in conduct, market integrity and cyber resilience… financial stability risks” could arise and hit market confidence.
The body, chaired by Bank of England governor Mark Carney, said in an assessment of the financial climate going into the meeting in Argentina that “the current backdrop of strong and balanced global growth is underpinned by a resilient global financial system that is the product of determined efforts by the G20 and FSB over the past decade.”
But it stressed the need to “regularly scan the horizon to identify and assess emerging risks,” including the rise of largely unregulated and often volatile crypto assets, which it said required enhanced monitoring.
“Crypto-assets raise a host of issues around consumer and investor protection, as well as their use to shield illicit activity and for money laundering and terrorist financing.
“At the same time, the technologies underlying them have the potential to improve the efficiency and inclusiveness of both the financial system and the economy,” the study noted.
It concluded that, “given the global nature of these markets, further international coordination is warranted.”
The FSB based in Basel, Switzerland, was created after the collapse a decade ago of US financial services firm Lehman Brothers in order to reinforce the financial system.
At the behest notably of France and Germany, how to deal with crypto will be on the agenda in Buenos Aires as opinions in top economies range from much tougher regulation to a hands-off approach.