The Financial Stability Board (FSB) functions on monitoring the global financial system and makes recommendations regarding the same. It is backed by the Bank for International Settlements (known as the central bank for central banks).
The FSB has recently stated in its report that cryptocurrencies do not cause any risk to global financial stability, though regulations and monitoring are crucially required.
The report primarily emphasizes on analysis of how utilization can help to get financial stability on the global level. The report is actually a follow-up on an initial assessment accomplished in the FSB Chair’s March 2018 letter to G20 Finance Ministers and Central Bank Governors. It also works as a follow-up to a review of work by standard-setting bodies on crypto-assets published by the FSB in July.
In the report by FSB, the cryptocurrencies are considered as a non-ideal means of payment, store of value or unit of account. It also states that some of the problems that cryptocurrency deals with are low liquidity, market risks from volatility and operational risks.
The report indicates, “Based on the available information, crypto-assets do not pose a material risk to global financial stability at this time. However, vigilant monitoring is needed in light of the speed of market developments. Should the use of crypto-assets continue to evolve, it could have implications for financial stability in the future.”
As given in the report, if crypto-assets sustain the popularity, it may affect financial stability by influencing investor confidence. The report also traces what it describes as a requirement for a balance between innovation and threats. Particularly, it refers to cryptocurrencies as growing technology at the cutting edge of innovation which potentially can cause a threat to the current financial system.
Also, the report elaborates about risks. It includes confidence effects and reputational risks to financial institutions and their regulators. Additionally, the risk that emerges from direct or indirect exposure of financial institutions, risks that occur if crypto-assets became commonly used in payments and settlement, and risks caused by market capitalization and wealth effects.
According to an expert from the report, “FSB members have to date taken a wide variety of domestic supervisory, regulatory, and enforcement actions related to crypto-assets. National authorities and standard-setting bodies have issued warnings to investors about the risks from crypto-assets, as well as statements supporting the potential of the underlying distributed ledger technology (DLT) that they rely on to enhance the efficiency of the financial system. These actions are balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity.”