The financial watchdog, which regulates the G20 nations, has written a letter to central bank governors and finance ministers, stating that cryptocurrencies don’t pose a risk to global financial stability.
The Financial Stability Board (FSB), chaired by Mark Carney, the Governor of the Bank of England, said:
The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time. This is in part because they are small relative to the financial system.
Carney went on to say that even with market prices peaking in December, the combined global cryptocurrency market was less than one percent of global GDP. He added:
In comparison, just prior to the global financial crisis, the notional value of credit default swaps was 100 percent of global GDP. Their small size, and the fact that they are not substitutes for currency and with very limited use for real economy and financial transactions, has meant the linkages to the rest of the financial system are limited.
However, he was clear to state that with the market rapidly evolving this initial assessment of cryptocurrencies could change if they become widely used or become linked to the financial system. Notably, while digital currencies come with a number of issues regarding consumer and investor protection, Carney says that the underlying technology, the blockchain, has the potential to improve the effectiveness and efficiency of the financial system and the economy.
These figures are notable from Carney considering his previous stance regarding the market and its need for regulation. Earlier this month, the head of the Bank of England said that the cryptocurrency market should be held to the same standards as the traditional financial system.
At the time, while speaking at the Scottish Economics Conference, at Edinburgh University, via a video link, Carney stated that authorities should ‘regulate elements of the crypto-asset ecosystem’ in order to curb illegal activities, promote the market’s integrity, and protect the financial system.
However, this announcement from the FSB has given a much needed boost to the digital currency market. Last week, market prices slumped considerably amid increasing regulatory pressure, a cryptocurrency advertisement ban from Google, and a massive bitcoin selloff from Mt Gox. As a result, bitcoin saw its value drop to a low of $7,800 whereas ethereum was trading below $600.
At the time of publishing, bitcoin is trading at $8,590, representing a 15.37 percent increase in 24 hours and ethereum is back up to $551, with a more than 17 percent rise over the past 24 hours, according to CoinMarketCap.
Featured image from Flickr via the Bank of England.