The Financial Stability Board (FSB) announced Monday creation of a framework to monitor the implications of cryptocurrency markets on financial stability. Furthermore, the board published a report explaining its work on cryptocurrency assets to the G20. This was done at request of central bankers and finance ministers at the meeting.
The FSB monitors and then makes recommendations to the G20 about the global financial system. On the other hand, the Committee on Payments and Market Infrastructure also partners with the FSB. Their partnership promotes payment efficiency, settlements, clearing and separate arrangements.
According to the report, “The objective of the framework is to identify any emerging financial stability concerns in a timely manner.” Furthermore, the reports shares, “The framework discusses the primary risks within crypto-assets and potential transmission channels to financial stability risks. The framework identifies which metrics the FSB might usefully monitor in the short-to-medium term.”
The report also recommends a general monitoring regarding growth rate of the crypto markets. The recommendation is to understand effects of the economy should there be a decline in valuation. Additionally, it recommends monitoring of cryptocurrency in settlements or payments.
The FSB notes that, “Market-related figures, such as metrics on prices, trading volumes, and volatility may be manipulated by generally prohibited practices such as ‘wash trading,’ ‘spoofing,’ and ‘pump and dump,’ the existence of which cannot be ruled out at this stage.”
Additionally, the board points out a proposition of measures may not fit all types of cryptocurrencies. Though, they will give a reflective picture of the cryptocurrency markets and its associated risks.
Low On Risk
The report also indicates that cryptocurrencies do not bear material risks to the balance of the global financial system. The main issues affecting the markets are investor and consumer protection, money laundering, market integrity, as well as terrorist financing. As much as the FSB does not believe that crypto markets will affect global financial security, it believes that monitoring of the market is very important.
In March this year, the G20 assigned the FSB a duty to monitor the markets and give a detailed report on its performance. They also want recommendations on how to regulate the markets. Cryptocurrency markets have been in existence for 9 years and they are growing massively. The board acknowledges that the underlying tech of cryptocurrencies, blockchain technology, has great potential of boosting the performance of the financial sector. Blockchain technology is proving to be safe and reliable.