Crypto bans in emerging economies might be unenforceable, warns Bank of International Settlements

In a recent paper, the BIS highlighted potential risks associated with how crypto interacts with emerging economies

article-image

Jack_the_sparow/Shutterstock modified by Blockworks

share

The Bank of International Settlements (BIS) believes that cryptocurrencies in emerging economies should be assessed with risk and regulation because they’ve been seen as a cheap and simple solution for financial challenges. 

In a recent paper, the BIS highlighted potential risks associated with how crypto interacts with emerging economies. The bank also offered guidelines for these economies to help them regulate crypto effectively and protect their citizens.

Crypto is technology dependent, the BIS noted, saying that emerging economies could be at risk for cyber-related attacks due to “relatively low and unequal technological development.”

Mixing technological concerns with a lack of financial literacy could create a worrisome cocktail, as there’s an inherent need to understand both components. 

“This can lead to a range of issues such as high levels of debt, improper investment choices and vulnerability to predatory practices,” while the lack of financial literacy can lead to “shocks.” 

The BIS pushes for emerging economies to take account activity and entity-based regulation into account. Essentially, an activity-based regulatory structure aims to regulate ”a systemically important activity directly, by constraining entities in their performance of that activity alone.” 

However, entity-based regulation primarily targets the entities carrying out the activities that the economy seeks to regulate.

“The combination of activities leads to a mix of risks, including liquidity transformation and leverage,” the BIS warned. 

It did note that there could be a compromise of the two regulatory approaches, which would ensure that crypto entities could beef up their war chests during bullish cycles to prepare for possible downturns.  

A blanket ban on crypto “might not prove enforceable” due to the “offshore” nature of crypto, the BIS warned. It would also make the markets less transparent as policymakers would “lose all sight of these markets.”

International coordination is one of the top suggestions the BIS makes, but it’s not a new suggestion. Across the world, regulatory bodies and policymakers are looking into how joint collaborations could help crack down on crypto crimes, while also monitoring developments across crypto.

Read more: IRS deploys attachés as countries acknowledge global need for crypto crime regulation

“A potential next step may be for authorities to collaborate on the establishment of a shared data repository where key information such as crypto-related activity and exposures of financial institutions, among others, would be stored,” the BIS suggested. 

Outside of regulatory frameworks, the BIS is also focusing on how central bank digital currency (CBDC) systems could interact with economies, noting that 93% of banks are exploring potential CBDCs.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

MON - WED, MARCH 18 - 20, 2024

Digital Asset Summit (DAS) is returning March 2024. What you can expect: And more! Don’t miss out on the opportunity to be in the room when the future of crypto is decided. Join us and help shape the future of our […]

recent research

Research report - cover graphics-2.jpg

Research

Base has doubled-down on its commitment to the Superchain vision, has shown early signs of success with nearly $400M in TVL, and has become home to novel dapps such as friend.tech which has seen significant traction.

article-image

Blockchain is a “natural fit” in games based on open economies and user-generated content, says Wyatt

article-image

Their current stance is a half-baked attempt that could stifle innovation and burden an emerging industry

article-image

Maker’s DeFi-focused “subDAO” passed a proposal activating a lending market for DAI on the Gnosis Chain

article-image

Certain creditors could be repaid sooner, with one hedge fund exec telling Blockworks it expects a payout by the end of the year

article-image

Busan is South Korea’s second largest city with a population around 3.4 million

article-image

Cyprus granted eToro crypto registration, setting the groundwork for the company to operate crypto services post-MiCa rollout