Growing risks of crypto assets for banks call for strong regulation


Governments around the world are increasingly focusing on cryptocurrency issues, with some central banks exploring central bank digital currency CBDCs.
The BCBS proposals exclude the treatment of central bank digital currencies, which, if introduced, would likely have risk profiles similar to central bank cash.
A number of countries have started experimenting with a general-purpose central bank digital currency (CBDC), while others are expected to launch pilot projects over the next two years. Authorities will need to trade off the risks and benefits associated with a widely used CBDC as they move this work forward.
“The deployment of CBDCs will create opportunities to strengthen the inclusion, innovation, resilience and efficiency of the financial system, but may also pose new risks,” said Monsur Hussain, analyst at Fitch Ratings.
Fitch sees the benefits of CBDCs as their potential to improve authority-backed cashless payments, with innovations in line with the wider digitization of everyday life.
For central banks in some emerging markets (EM), a key driver of CBDC research is the ability to integrate underbanked communities into the financial system and improve cost, speed and reliability. resilience of payments.
As the rise of digital payment systems, which have strong network effects, risks creating oligopolies in the payments space, Fitch expects widespread use of CBDCs could erode supplier monopoly. on payment-related data and improve the ability of central banks to track and trace financial transaction data for money laundering and financial crime prevention.
Main risks
The introduction of CBDCs will entail risks of declining role of banks in day-to-day financial transactions and a significant loss of privacy.
“We believe that the introduction of CBDCs will inevitably involve households and businesses converting part of their commercial bank deposits to CBDCs. All other things being equal, this would force banks to reduce their balance sheets – a process known as disintermediation, ”said

These risks would likely increase if the portfolios of CBDCs were managed directly by central banks, rather than being administered by authorized financial institutions. Even in the latter case, funds can still flow from deposit accounts to CBDC wallets if fears of financial instability increase.
Another challenge facing CBDCs is how to replicate species anonymity. Users may be reluctant to accept a digital money substitute if it does not guarantee a sufficient degree of confidentiality.

Previous This is the 3rd Metár call for tenders: what investors need to know
Next Newly discovered 1794 dollar will be featured in Stack's Bowers Galleries' August ANA auction