Watchdog claims crypto threatens global finance

The Financial Stability Board (FSB), an international body that monitors the global financial system, issued a warning on Wednesday that crypto assets and the emerging market around them continue to pose “a serious threat” to mainstream finances.

The FSB is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009 as a successor to the Financial Stability Forum

The FSB cited the scale of the market as well as its structural vulnerabilities as the main culprits that could trigger unwanted consequences for the financial system.

This comes at a time when the world of traditional and crypto assets is becoming increasingly interconnected. Even Warren Buffett is investing in crypto these days.

Meanwhile, the FSB offered a sobering reminder about the threats that the global system faces. “Although the extent and nature of use of crypto assets varies somewhat across jurisdictions, financial stability risks could rapidly escalate, underscoring the need for timely and pre-emptive evaluation of possible policy responses”, the organization said.

The FSB warned that more banks are showing an interest in crypto assets and are willing to gain exposure to them, use derivatives and other leveraged products, all of which could have implications for global stability.

The market capitalization of crypto assets has reached $2.6 trillion, the organization estimated.

The organizations that have business in crypto could also see potential issues with their balance sheets and liquidity in what the FSB described as “unexpected ways”.

Even a small amount of exposure could lead to bigger risks, the FSB said, citing the US sub-prime mortgage crisis.

The FSB talked about vulnerabilities across decentralized finance (DeFi), crypto asset trading platforms and stablecoins, all of which needed structured addressing.

Stablecoins have been cited as a risk to the global system by other analysts, including Nikkei. The FSB has no actual powers over countries and their financial policies, but it serves as a good guide as to what risks and challenges the global financial system faces as a whole.

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Updated: 02/17/2022 — 22:00