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The Basel Committee on Banking Supervision (BCBS), the international authority on all things banking, has released a statement warning that cryptocurrencies could lead to financial instability.
The BCBS is a committee of banking supervisory authorities that provides supervision on banking related matters.
The statement explains that the Committee believes the continued growth of the cryptocurrency industry and the release of new crypto-related financial products “has the potential to raise financial stability concerns and increase risks faced by banks.” The statement goes on to say that, despite the relatively small scale of the cryptocurrency market, it remains a threat to the global financial system.
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The BCBC add that they believe 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.” It goes on to state that cryptocurrencies aren't legal tender, and haven’t been backed by any governments.
Citing a high degree of risk between banks and cryptocurrencies such as liquidity risk, credit risk, money laundering and terrorist financing as well as legal and reputational risks, the BCBS don’t recommend banks become involved with digital assets.
However, if a bank decides to work with crypto anyway, the bank should conduct comprehensive analyses of the risks and ensure relevant and requisite technical expertise. The bank should also ensure a clear and robust risk management framework.
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