The Basel Committee on Banking Supervision (BCBS) have said that despite a high degree of risk and volatility, people are continuing to buy cryptocurrencies and that it could become a threat to banks.
BCBS is a committee of banking supervisory authorities, hosted and supported by the Switzerland-based Bank For International Settlements (BIS).
In a statement released this week, BCBS said that while the crypto-asset market remains small relative to that of the global financial system, banks currently have minimal direct exposure.
“The Committee is of the view that the continued growth of crypto-asset trading platforms and new products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks”.
Banks State The Obvious And Dread A Financial Revolution
Crypto enthusiasts see digital currencies as a way of fighting a corrupt banking system. With decentralized asset technology, wealth can be distributed more evenly and will be more open considering banks can create money by simply printing it. Banks do not want to lose control.
The banks fear the possibility of a financial upheaval where the existing systems are ultimately devalued. Cryptocurrencies “do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value”, the Committee said. “Crypto-assets are not legal tender, and are not backed by any government or public authority”.
They say that any bank working with crypto assets should ensure it possesses the relevant technical expertise to be able to evaluate the risks inherent in the industry. These risks include liquidity, fraud and cybercrime, money laundering, terrorist financing and legal and reputation risks. Additionally, banks must disclose any crypto-related services along with its financial disclosures and must be compliant with local regulations.
The BIS have said that 70 percent of global central banks are exploring the benefits of central bank digital currencies (CBDC). It found that wholesale CBDCs might be useful for payments but “more work is needed to assess the full potential”. Although a CBDC would not alter the basic mechanics of monetary policy implementation, its transmission could be affected.
The Committee will clarify the cost-effectiveness of exposures to appropriately “reflect the high degree of risk of crypto-assets,” the newsletter read. “It is coordinating its work with other global standard-setting bodies and the Financial Stability Board.”