Cryptocurrencies not only have failed to mitigate but have instead purportedly elevated financial risks in less developed economies, suggests a recent study published by the Bank for International Settlements (BIS). The paper, the result of an investigation conducted by the central banks of countries including Argentina, Brazil, Canada, Chile, Mexico, Peru, and the United States, cautions against overly prohibitive legislation due to the risk of pushing crypto activities into obscurity. However, what this prophesies for the future of cryptocurrency regulations remains a mystery.
For emerging economies, the allure of cryptocurrency emerges from its potential to solve financial challenges, acting as low-cost payment solutions, as alternatives for economic system participation, and as substitutes for national currencies in countries with high inflation or exchange rate volatility. Despite this,the authors of the study have pointed out the risk of central banks and regulators responding in an excessively prohibitive manner which could potentially accelerate crypto activities into the shadows.
The study highlights Bitcoin exchange-traded funds (ETFs) as major potential market risks. In detailing the risks, the authors note a situation where ETF investors do not physically own crypto assets, but still face massive losses when the price of Bitcoin drops. Thus, in light of the amplified financial stability risks, the paper orchestrates various alternatives for authorities to address these risks which range from outright bans to containment to regulation.
Despite the uncertainty that lies ahead for cryptocurrencies like Bitcoin in emerging markets, the authors introduced an unforeseen counterpoint: while crypto activities may not have fulfilled their purposed objectives to date, the underlying technology could still be applied in beneficial ways, making its regulation a key challenge going forward.
This study echoes a previous report from the BIS that vocalized high skepticism over cryptocurrencies, citing their supposed irreversibility and the instability of stablecoins. At the same time, it extolled central bank digital currencies for underpinning the future monetary system.
On a closing note, it’s important to underscore that the study does not necessarily reflect the views of the BIS. It is also unclear which emerging markets exactly are implicated in the study, as regulations vary significantly across jurisdictions.
Source: Cointelegraph
