According to The Financial Stability Board (TFSB), the increasing demand for cryptocurrency exposure by large institutions and VC companies could be counterproductive for not only these financial giants, but the entire world.
To avoid a financial crisis, the watchdog recommended that operations that involve large money investments be subject to greater oversight.
Global Financial Stability could be at Risk
The FSB published a report on Wednesday, February 16th 2021. It stated that it is essential to take precautions in order to protect the stability of the international banking system against the risk of large investments in fast-growing technologies, like cryptocurrencies, with no guarantee of success long-term.
“If financial institutions continue becoming more involved in cryptoasset markets, this may affect their balance sheets or liquidity in unexpected ways… This could have implications for global financial security if the current trajectory of growth and interconnectedness in crypto-assets to institutions continues.
The FSB points out that cryptocurrencies do not account for a large portion of money moving in traditional financial markets, despite their rapid growth. They acknowledge that if the current growth rate continues, it could lead to a significant shift in the traditional financial system, which could have serious implications for global financial stability.
Contrary to popular belief, the FSB states that there are many players in the cryptocurrency industry who don’t understand the technology. It also points out the rise in ransomware, money laundering and cybercrime. The report, however, focuses more on market risks and vulnerabilities such as liquidity mismatch and unbacked stablecoins. It also highlights the increased use of leverage and the lack of regulatory oversight.
The FSB Will Not Stop Monitoring Crypto Industry
As the successor to Financial Stability Forum, the FSB was an international organization that was established in 2009. The G7 created it to coordinate the policies of the major finance ministries and central bankers around the globe. It currently includes 24 countries and other multilateral institutions such as the Bank for International Settlements and the European Central Bank.
According to the FSB, it will continue to monitor and share information with regulatory bodies in order to support the industry’s growth.
It stated that among the top issues it is concerned with, it will examine the implications of Bitcoin and Ether being adopted as non-fiat-based exchange means.
Marla Brooks – Financial Analysis
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