Crypto assets are a threat to the global financial system, warns global watchdog

Crypto assets are a threat to the global financial system, warns global watchdog

  • The Financial Stability Board has called for a crackdown on digital coins
  • Market value of crypto assets increased 3.5x in 2021 to £1.9 trillion
  • FSB says if they continue to grow at such a rate, the risks will “escalate rapidly”

Crypto assets such as bitcoin are a threat to the global financial system, a global watchdog has warned.

The Financial Stability Board (FSB) has called for a crackdown on digital coins and the platforms they are traded on, as it warned they have the ability to send shockwaves through global markets.

Currently, crypto assets are not used enough to cause a serious problem, the Basel-based FSB said. But if they continue to grow at their current rate, the risks will “escalate rapidly”, he added.

Crypto assets such as bitcoin are a threat to the global financial system, a global watchdog has warned

The market value of crypto assets has increased 3.5x in 2021 to reach £1.9 trillion as financial institutions such as investment banks and hedge funds have become more interested in trading the coins and buy them for their customers.

The FSB said, “If the current trajectory of growth in the scale and interconnection of crypto assets with these institutions were to continue, it could have implications for global financial stability.”

Crypto assets cover a range of different digital coins. Some, like bitcoin, have no intrinsic value because they are not tied to any traditional currency or tangible good.

Others, known as stablecoins, attempt to peg their value to currencies or precious metals. The FSB said: “A disorderly run due to loss of confidence in a global stablecoin that has reached significant scale could lead to disruptions in the real economy and spillovers to the broader financial system.”

The FSB also pointed out that several platforms that allow users to trade crypto assets, and even offer services such as lending, are unregulated by financial watchdogs in most countries. This “highlights the lack of transparency in their activities”, he said.

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Don F. Davis