Bank of Spain warns of threats posed to banking by cryptos

Bank governor Pablo Hernández de Cos argued that cryptoasset adoption could threaten monetary sovereignty

The governor of Spain’s central bank has highlighted the risks that he believes cryptoassets pose to the nation’s traditional banking system. 

Giving the inauguration speech for II Finance Observatory, an event dedicated to assessing the state of the Spanish finance and insurance sectors, Bank of Spain’s Pablo Hernández de Cos argued that for banks to integrate cryptocurrency services “would increase their risks, both patrimonial and reputational”. 

Although he recognised that cryptoassets have become “a new factor of competition” for banks, de Cos said: “An increase in the direct and indirect exposure of banks to the cryptoassets sector would increase both their equity and reputational risks.”

Volatility and sovereignty

Like many other central bank heads around the world, the governor identified volatility and the threat to monetary sovereignty as the key threats posed by cryptoassets.

He singled out stablecoins as being potentially the most threatening, arguing that their peg to national currencies could make them a store of value. 

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De Cos also argued that mass adoption could exacerbate future volatile market events, saying: “A generalised panic could stress the money markets and, by extension, infect the entities that act as custodians of the hedge assets.” 

He said that mass adoption “compromises monetary autonomy and erodes the ability to exercise effective control over international capital movements, among other aspects.”

Although keen to stress the possible dangers posed by cryptocurrencies, de Cos was not entirely hostile, admitting that crypto adoption could lead to wider improvements in the efficiency of payment systems. 

He said: “We have a feeling [cryptocurrencies] could end up being important in the wider financial system.”

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