Far from reducing financial risk, cryptocurrencies such as Bitcoin (BTC) “amplify it” in less developed economies, according to a new study published by the Bank for International Settlements (BIS).

August 22, Advisory Group of Directors for Financial Stability (CGDFS) freed A new report on cryptocurrencies, titled “Financial Stability Risks from Cryptoassets in Emerging Market Economies.”

The research was carried out by BIS member central banks within the CGDFS, including those of Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru and the United States. The document stresses that the views expressed are those of the authors and “not necessarily those of the BIS”.

The study’s authors said cryptocurrencies like bitcoin have “illusory appeal” as a quick solution to financial challenges in emerging markets.

“They are promoted as low-cost payment solutions, alternatives to access the financial system, and alternatives to national currencies in countries with high inflation or high exchange rate volatility,” the research report stated. Financial stability risks, and authorities have many policy options to address these risks, ranging from outright prohibition to containment to regulation.

At the same time, there are risks if central banks and regulators react in an “overly prohibitive manner,” adding that such policies could push cryptocurrency activity into the shadows. The author adds:

“While activities related to cryptocurrencies to date have not achieved their stated goals, the technology can still be applied in a variety of constructive ways. Creating a regulatory framework to steer innovation in directions that benefit society will remain a key for the future challenge.”

Central banks see bitcoin exchange-traded funds (ETFs) as one of the main potential market risks in emerging markets, as such products lower barriers to entry and increase exposure for “less sophisticated investors”.

Among the risks, the study’s authors mentioned a situation where Bitcoin ETF investors “do not own crypto assets but still face large losses when the price of Bitcoin falls.” Additionally, the document states that ETFs based on cryptocurrency futures “could increase price volatility and amplify risk if they capture a significant portion of the futures market.”

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Exactly what emerging markets are hinted at in the study also seems somewhat unclear, as many of these jurisdictions, including China and Pakistan, have been fairly strict when it comes to cryptocurrency regulation. Again, it is unclear whether the situation is different in more developed countries.

The BIS did not immediately respond to Cointelegraph’s request for comment.

While not necessarily expressing the views of the BIS, the study is another sign that the institution is cautious about adopting cryptocurrencies such as bitcoin. In a separate report in July, the international financial institution reiterated its high level of skepticism about cryptocurrencies, pointing to common problems such as the instability of stablecoins and the alleged irreversibility of smart contracts.

On the other hand, the central bank speaks highly of the central bank’s digital currency. “By underpinning the monetary system of the future, CBDCs will serve as the basis for further innovation,” the agency wrote.

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