MOSCOW, January 20. /TASS/. The proliferation of cryptocurrencies could pose serious threats to the economy and the financial sector, according to the Bank of Russia’s report titled "Cryptocurrencies: Trends, Risks, and Measures".
"If this market continues to grow and banks and other traditional market players get heavily involved, there is a chance that financial intermediaries will be exposed to cryptocurrency-specific liquidity risks as well as market and credit risks, which are typical for cryptocurrencies," the Central Bank contended.
At the same time "the interconnectedness of large financial institutions may help spread such risks to a wider range of market players and to the real economy. Thus, if cryptocurrencies were to proliferate, it could pose significant threats to the economy and the financial sector," the Bank of Russia cautioned.
The regulator pointed out that further use of cryptocurrencies as a means of payment for goods and service would carry the risk of undermining the circulation of money and the sovereignty of the nation’s currency.
"The problem [with the proliferation of cryptocurrency] is similar to the problem of foreign currency predominance (growth in cash, deposits in foreign currency or investments in foreign securities), which is primarily typical for emerging markets," the Central Bank explained.
Moreover, the predominance of foreign currency or cryptocurrency means that the effect of the Bank of Russia's monetary policy will be very limited, and the inflation rate will be constantly elevated.
According to the Russian regulator’s estimates, due to the expected outflow of capital from the traditional financial system to the cryptocurrency market, there is a risk of a decrease in funding for the real sector of the economy.
"The outflow of funds from traditional securities (stocks, bonds) to cryptocurrencies will lead to a drop in the capitalization of the Russian stock market and limit the ability of issuers to attract investments. This will negatively impact the economy’s development, reduce the potential growth rate of citizens' incomes and increase unemployment," the regulator notes.
Moreover, from a balance-of-payments perspective, a massive buy-up of cryptocurrency by the population would entail an outflow of capital from the country and the ruble’s weakening.