Risk from crypto assets may soon threaten the global financial system, the outgoing Financial Stability Board Chair Klaas Knot warned.
Speaking in Madrid on Thursday, Knot said that until now, crypto did not pose a systemic risk. However, recent developments are changing that. “At the FSB, we have long maintained that crypto does not yet pose a systemic risk, but recent developments suggest we may be approaching a tipping point,” he said.
He pointed out that stablecoin issuers now hold large sums of US Treasuries, a development he called “a segment we must monitor closely.”
Stablecoins, unlike Bitcoin or other crypto tokens whose prices swing wildly, are meant to stay pegged at one dollar each. They are now under the microscope in the US Congress, where lawmakers are preparing the first major rules for digital assets.
At the same time, several European Central Bank officials have voiced worries about the risks these tokens could create.
ECB says that crypto can cause financial instability
In its May Financial Stability Review, the ECB highlighted growing dangers from crypto assets such as stablecoins. It noted that the rising values of these digital tokens and their deeper ties to traditional banks and markets could add to financial instability.
Knot, who also heads the Dutch central bank, stressed that making it easier for everyday investors to buy crypto has increased links with the financial system.
“Barriers for retail users have dropped significantly, particularly with the introduction of crypto ETFs; the interlinkages with the traditional financial system continue to grow,” he said. He added that as the crypto world changes, “so must our regulatory frameworks.”
Knot’s terms at both the FSB and the Dutch central bank end on June 30. Bank of England Governor Andrew Bailey will succeed him at the FSB, but the Dutch government has yet to name someone to lead its central bank.
Knot’s remarks came a day after the US Senate voted to move forward with a bill that would set up official rules for stablecoins. The motion to end debate on an updated version of the GENIUS Act passed with overwhelming support: eighteen Democrats joined almost all Republicans in voting to advance the bill.
Before the GENIUS Act can become law, it needs a few more votes in the Senate and then approval in the House. Senator Cynthia Lummis of Wyoming told The Hill on Tuesday that she expects the Senate to hold a final vote on the bill next week.
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