The Financial Stability Board (FSB), an international body that monitors the global financial system, said that cryptocurrencies are not currently a threat to global economic stability.
In a new report titled “Crypto-asset markets: Potential channels for future financial stability implications,” the FSB said that crypto-assets do not pose a material risk to global financial stability at this time because their total market capitalization remains small compared with other financial markets.
“The market capitalization of crypto-assets remains small relative to the global financial system, at $210 billion as of 4 October 2018, about 0.9% of the market capitalizzation of the S&P 500 and 2.8% of the global value of gold,” the report said.
However, the FSB said that vigilant monitoring is needed in light of the speed of market developments. Should the use of crypto-assets continue to evolve, the agency said it could have implications for financial stability in the future.
“A large market capitalization of crypto-assets and easy convertibility with fiat currencies could entail new risks to the financial system, if funds were suddenly shifted from deposits into crypto-asset holdings,” the report said. “This may entail bank funding pressures, which could materialize much quicker than in the case of physical banknotes or existing alternatives.”
The FSB added that cryptocurrencies also raise several broader policy issues, such as the need for consumer and investor protection; strong market integrity protocols; anti-money laundering and combating the financing of terrorism (AML/CFT) regulation and supervision.
“These problems are exacerbated when crypto-assets are not backed by an accountable entity that can be bound by regulation and held responsible for potential breaches of regulation,” the FSB. “Given the inherently global nature of most crypto-asset platforms, these issues generally have cross-border elements that necessitate international coordination and are the subject of ongoing initiatives within international standard-setting bodies (SSB).”
The international body said that they will continue to monitor the risks to financial stability on an ongoing basis, via a framework developed jointly with the Committee on Payments and Market Infrastructures (CPMI), which includes risk metrics that are most likely to highlight risks to financial stability, using data from public sources where available.
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