The development of cryptocurrencies in recent years has sparked significant debate and skepticism about their potential value in the economic landscape. The Bank for International Settlements (BIS), a global organization dedicated to the stability and growth of financial systems, issued a new report focused on cross-border cryptocurrency flows. In this report, the BIS posits that mainstream cryptocurrencies such as Bitcoin, Ethereum, and stablecoins are not primarily financial assets but instead represent speculative tools and trading vehicles within their respective markets. This perspective challenges conventional understandings of how cryptocurrencies function in international transactions.
The BIS’s recent paper, “Empirical Analysis of Cross-Border Bitcoin, Ethereum and Stablecoin Flows,” delves into the complex dynamics of cross-border flows between 184 countries from 2017 to mid-2024. The study finds that capital flow measures, which are typically used to assess regulatory frameworks and economic stability, have little impact on cryptocurrency transactions. This is counterintuitive, as prior research suggests that capital flows may even create opportunities for growth by facilitating cross-border trading. The BIS argues that the current environment encourages the inflow of capital, both as providers of products and as consumers, which allows cryptocurrencies to emerge as unregulated trading vehicles. This dynamic simplifies the extraction of capital flows from financial systems as a one-way transaction, which is a departure from the usual two-way flow dynamics observed in traditional markets.
The BIS also provides critical insights into the catalysts that drive cross-border cryptocurrency flows in various countries. Analysis reveals that cryptocurrencies, particularly Bitcoin, gain momentum as speculative assets in countries with open financial channels, such as developing nations, where trade often dominates global economic activity. This highlights Bitcoin’s dual role as a speculative investment tool and as a rapidly growing trading vehicle. On the other hand, more stablecoins, such as those issued by emerging markets with limited trading channels, thrive in these environments due to their lower embedding costs and seller incentives. This observation underscores the importance of geopolitical and economic conditions in shaping the direction of cross-border cryptocurrency flows.
The BIS reports that stablecoins are more prevalent in emerging markets where traditional financial channels are costly and saturated. These countries often favor stablecoins as a measure of liquidity and buyer confidence. Additionally, stablecoins are preferred by investors who value fast transactions and require minimal price fluctuations due to factors such as money transfer costs. Extingues these claims, the BIS concludes that stablecoins are not merely transactions vehicles but essential to the functioning of global financial stability. Their inclusion in international money markets enhances economic exchange rates, acts as testing ground for incoming technology, and even facilitates cross-border capital flows.
The BIS ultimately re-evaluates its initial assessment of the impact of cryptocurrencies on financial inclusion and economic stability. While the introduction of cryptocurrencies has created new opportunities, the BIS now warns that the current model may not adequately address the unique challenges of these technologies in the post-pandemic economy. As cryptocurrencies become more mainstream, their role in global financial systems becomes increasingly complex, raising concerns about their ability to stabilize the economy and promote economic growth. The BIS’s report is a poignant reminder of the ongoing debates surrounding the role of blockchain-based cryptocurrencies in the global financial landscape.
