The FSB, in a letter to G20 finance institution chiefs and central bank partners, the body (formerly known as the Financial Stability Forum), which is tasked with monitoring and making recommendations about the global financial system, wrote that “the current financial stability challenges reinforce the importance, and increase the urgency, of the FSB’s ongoing policy work in several areas, including […] strengthening the resilience of non-bank financial intermediation as well as crypto assets and cyber risks.”
The FSB is an international body that monitors the global financial system and makes recommendations to its member states, which include the G20 nations. It was established in 2009 in the wake of the global financial crisis and is comprised of representatives from major central banks and finance ministries. In a new report on “Macroeconomic and Financial Stability Implications from Rapid Advancements in Digital Technology,” the FSB warned that the increased use of digital assets could lead to “higher risks of cross-border capital flight” and “domestic financial stability implications.”
The IMF , meanwhile, is an international organization that provides financial assistance to member countries. It was founded in 1945 and has 189 member countries. In a blog post published on Thursday, the IMF said that “a rapid increase in the use of digital currencies could create new vulnerabilities in the global financial system.”
Both the FSB and IMF warned that central banks should closely monitor the development of digital assets and consider regulating them if necessary.
The warnings come as tensions between Russia and Ukraine continue to escalate. On Wednesday, Ukrainian President Petro Poroshenko announced that he was imposing martial law in parts of the country for 30 days amid fears of a Russian invasion. Russia has been accused of interfering in Ukraine’s affairs since Moscow annexed Crimea in 2014.
The report comes amid continued fighting in Ukraine between government forces and pro-Russian separatists, which has left more than 13,000 people dead since it began in 2014.
The Basel-based Financial Stability Board (FSB) has echoed similar sentiments previously expressed by the International Monetary Fund (IMF). Both financial bodies warn of the increasing risk that the Russian-Ukrainian war will lead to, an “acceleration of cryptoization in emerging markets” could be on the cards.
In a new report, the FSB says that “crypto assets” could facilitate cross-border capital flight and pose risks to domestic financial stability if not properly regulated. The body stresses that while crypto assets are not currently “a major concern”, their growth in use coupled with “geopolitical tensions” could change that.
In its report, the FSB argues that “vigilance is needed” as the use of crypto assets during the crisis continues to grow. The body points to data showing that the total value of crypto assets has grown from around $12 billion in 2016 to over $2 trillion in 2022.
In a foreword, the IMF’s Financial Counsellor Tobias Adrian warned that “the fragmentation of payment systems could be associated with the rise of central bank digital currency (CBDC) blocs.”
He added: “If not properly managed, such developments could lead to reduced cross-border payments and market liquidity, and potentially fragment the global financial system.”
The FSB report comes as tensions between Russia and Ukraine continue to simmer.