- Developing countries face increased financial risks due to cryptocurrency, according to a BIS report.
- The approval of ETFs could pose greater risks to national economies.
- Out of the 20 countries showing the most interest in cryptocurrencies, only 2 are developed nations.
According to the Bank for International Settlements (BIS), cryptocurrencies have increased financial risks in developing countries, and the approval of ETFs could further exacerbate these risks. Interestingly, only two developed countries feature among the top 20 nations most interested in cryptocurrencies.
The Bank for International Settlements’ View on Cryptocurrencies
A group of central bankers, led by Mexico and Colombia, stated on Tuesday that cryptocurrencies have failed to mitigate financial risks in emerging markets. However, they believe the response should not be an outright ban, but rather regulation. People in developing countries are more motivated towards cryptocurrencies, seeing them as a way out of income inequality and challenging living conditions. These economies have quickly adopted cryptocurrencies due to the volatile nature of their fiat currencies and lack of access to traditional banking.
Chainalysis Data on Cryptocurrency Usage
According to data from Chainalysis, only two of the top 20 countries using cryptocurrencies the most are developed nations. The rest are countries like Vietnam, Brazil, and India. The latest report from the BIS largely addresses this demand motivation. The report suggests that while cryptocurrencies may be a popular way to send money abroad, they could cause “large and sudden changes in capital flows”.
Details of the Cryptocurrency Report
The report focuses on demand in developing countries. Key findings include that cryptocurrencies have not reduced financial risks in less developed economies, but rather increased them. The study also suggests that while “technology can still be applied in various constructive ways”, regulations should “channel innovation into such socially beneficial directions”. The report also warns that the emergence of ETFs based on cryptocurrencies could increase risks and allow a wider population without expert financial knowledge to enter the market.
Conclusion
In July, the BIS stated that cryptocurrencies could not be used as money due to inherent flaws. The United Nations’ development arm also suggested that developing economies should impose broad restrictions to reduce risks to tax collection and monetary policy.
