The Bank for International Settlements (BIS) is a financial community of 63 central banks that collectively make up approximately 95% of global GDP. While the decisions made here do not impose sanctions on countries, they are taken into consideration. BIS has been closely monitoring cryptocurrencies for a long time and publishing reports on the subject.
A group of central bankers, led by Mexico and Colombia, stated on Tuesday that crypto has failed to mitigate financial risks in developing markets, but the response should be regulation rather than an outright ban.
People in developing countries have a greater motivation to turn to cryptocurrencies. Income inequality and difficult living conditions turn crypto into an escape route for them. Developing economies, with reasons such as volatile fiat currency and lack of access to banks, have been quicker to adopt crypto as an alternative to traditional finance.
According to Chainalysis, only two of the top 20 countries with the highest crypto usage worldwide are developed countries, with the rest being countries like Vietnam, Brazil, and India.
The latest report published by BIS largely addresses this demand motivation. According to the research, promises of protecting people from inflation or offering a low-cost payment alternative are only a part of the “illusory appeal” of crypto. The report also states that while crypto can be a popular way to send money abroad, it can cause “significant and sudden changes in capital flows.”
As we mentioned, the report focuses on the demand in developing countries. To summarize the highlights of the report, we can say the following:
In July, BIS stated that cryptocurrency cannot be used as money due to the “inherent flaws” in its nature, while the United Nations’ development arm called for widespread restrictions to reduce the risks to tax collection and monetary policy in developing economies.