By Godwin Anyebe
Despite some proponents advocating for digital assets as a solution to issues like costly transaction fees and rampant inflation in developing economies, the BIS report suggests otherwise.
The report states that “crypto assets hold out the illusory appeal of being a simple and quick solution for financial challenges in emerging market economies and that they have been promoted as low-cost payment solutions, alternatives for accessing the financial system, and as substitutes for national currencies in countries with high inflation or high exchange rate volatility.”
However, crypto assets have so far not reduced, but instead amplified the financial risks in less developed economies. Therefore, they should be assessed from a risk and regulatory perspective like all other assets. This will become even more pressing if crypto assets are more widely adopted by retail investors and if links with the traditional financial system increase, the report adds.
Furthermore, the study suggests that while there are multiple strategies available to developing nations to mitigate the potential adverse effects of cryptocurrencies, an absolute ban might be overly restrictive and could lead to unforeseen repercussions.
The report advises caution, stating that authorities face a number of policy options to address risks in crypto assets, ranging from outright bans to containment to regulation.
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Bans and containment – if they are effective – may prevent financial stability risks from arising. At the same time, there are risks if central banks and regulators react in an excessively prohibitive manner.
For instance, activities may be driven into the shadows, and it may be more challenging to influence responsible actors in the sector.
The report notes that just because new methods are different doesn’t mean they should be labeled as “dangerous” by default.
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