Basel Committee Warns Cryptocurrencies Pose Substantial Risk to Banks, Bankers Beginning to Truly Fear Crypto?

Basel Committee Warns Cryptocurrencies Pose Substantial Risk to Banks Despite Limited Exposure, Banks Beginning to Truly Fear Crypto

A fresh report from the Basel Committee on Banking Supervision, a consortium of international supervisory banking authorities, warns of cryptocurrencies. Specifically, the organization is alerting that the growth of cryptocurrencies could present a number of risks for traditional banks.

BCBS warns continued growth of cryptocurrencies could be risky for banks

The Basel Committee on Banking Supervision (BCBS) is a division of the Bank of International Settlements (BIS), which is oftentimes referred to as the ”central bank of central banks.”

As such, it is quite plain that central bank-issued fiat currencies are more appealing to the BCBS than cryptocurrencies. Subsequently, it should come as no surprise that the BCBS has now released a statement warning that more growth in crypto-assets could adversely impact traditional banks.

”[…] the Committee is of the view that the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.”

Put simply, the statement contains an exhaustive critique of cryptocurrencies, arguing that the asset class cannot ”reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value.”

Nevertheless, the statement argues that cryptocurrencies are a prime concern for banks – despite banks supposedly having ”very limited exposures” to the assets class. Moreover, the statement argues that cryptocurrencies pose a vast myriad of risks for banks.

Namely, these include ”liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risks; and legal and reputation risks.”

The BIS has previously issued harsh criticisms of cryptocurrencies

However, this is just the latest in a series of negative cryptocurrency-related statements from the BIS.

Last June, the bank referenced cryptocurrencies in its Annual Economic Report. In it, the bank denied that cryptocurrencies solve any economic issues, arguing that ”transactions are slow and costly, prone to congestion, and cannot scale with demand.”

This statement is undeniably ironic, seeing that traditional bank settlements are far slower than their cryptocurrency counterparts. Consequently, the cryptocurrency community immediately questioned the BIS’ comments in June, and will likely do the same now.

It is clear that the BIS would not actively promote a shift towards cryptocurrencies, as it could render central banks – which the BIS coordinates – obsolete. This preface makes the BIS’ and the BCBS’ unbalanced critique of cryptocurrencies more understandable.

Are these ”warnings” motivated by fear?

Furthermore, this reasoning also ties in neatly with a recent piece from CCN, arguing that banks are increasingly fighting cryptocurrencies out of fear of being replaced. This article suggests that banks are not only afraid of cryptocurrencies because they do not understand it, but also due to them not being able to control it.

Moreover, it also highlights banks’ seemingly crucial concern that cryptocurrencies can be used for money laundering – and juxtaposes this view with how traditional banks are increasingly being caught red-handed being involved with both large-scale money laundering and corruption.

As such, claiming that cryptocurrencies are unfit for adoption due to ”lax anti-money laundering procedures” can easily be viewed as more than a little hypocritical.

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