Trump's Crypto Move May Boost Global Risks, Warns Bank of Italy
(Romero.my.id) -- According to the Bank of Italy, crypto assets might present a threat to the stability of financial markets if the U.S.'s efforts to adopt these assets lead to their becoming systemically significant.
The central bank in Rome highlighted these potential risks in a semi-annual report released on Tuesday. The document also noted an overall rise in global vulnerabilities following Donald Trump’s election to the presidency of the United States.
“The strong growth of Bitcoin And other crypto assets characterized by significant price fluctuations pose risks not just for investors but also potentially threaten financial stability due to the increasing connections between the digital asset market, the conventional finance industry, and the actual economy," the report stated.
Building on the momentum from Trump’s win in November and his subsequent inauguration in January, U.S. lawmakers are currently advancing legislation aimed at establishing a regulatory structure for dollars-pegged tokens through Congress. legislation concerning stablecoins in the Senate expected to obtain sufficient support to move forward.
Various officials from the European Central Bank, such as France’s François Villeroy de Galhau and Finland’s Olli Rehn, have expressed worries regarding related risks , with him stating on Monday that “I am quite worried about the potential widespread adoption of crypto assets in the U.S.”
Apart from the dollar, there are stablecoins tied to other currencies like the euro and various assets. Although major stablecoins linked to the dollar have mostly held their value over recent years, the broader cryptocurrency market continues to be highly unpredictable. The Bank of Italy has pointed out that recent fluctuations in these asset values highlight potential risks down the line.
“The report stated that once the new U.S. administration assumed power and announced plans to encourage the adoption of crypto assets, this led to a brief yet significant rise in global market prices for such items, even those known for high speculation. It further warned that should these tools integrate more deeply into conventional finance systems, it might introduce additional risks to both markets and middlemen.”
Concerning stablecoins pegged to the dollar, the Italian central bank is concerned about potential issues arising should these coins become widespread and one of their issuers faces financial difficulties. Leading stablecoin issuers predominantly support their tokens with short-term U.S. Treasury securities.
If one of the latter fails, it might lead to a surge in reimbursement demands, causing an abrupt rise in redemption requests from stakeholders and necessitating the hasty disposal of reserve assets," the report stated. "Such actions could strain U.S. Treasury markets and have ripple effects across various segments of the worldwide financial sector.
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The Bank of Italy’s financial stability report was among the initial ones released after Trump imposed worldwide tariffs, which sparked market unrest. According to their officials, risks "have risen overall," despite the tensions having subsided somewhat from early April levels.
The report's tone aligns with that of European Central Bank Deputy President Luis de Guindos, who informed legislators on Monday that authorities must carefully monitor fluctuating financial markets.
The recent disruption in trade policies has sparked the biggest financial market chaos since the onset of the pandemic, he said These changes require close observation. Sudden shifts in financial markets might turn chaotic, especially if these movements are intensified by the rising scale and impact of non-bank financial entities.
--Assisted by Mark Schrowers and Alexander Weber.
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