Pablo Hernández de Cos, governor of the Bank of Spain and chair of the Basel Committee on Banking Supervision, explained that the cryptocurrency space and decentralized finance (defi) need to be regulated swiftly to avoid risks of financial instability. Hernandez de Cos also mentioned how this swift approach should bring the crypto financial system into the scope of regulation before it grows bigger.
Governor of Bank of Spain Talks Crypto Regulation
The governor of the Bank of Spain, Pablo Hernández de Cos, who is also part of the banking supervision Basel Committee, explained his take on how he thinks cryptocurrency regulation should be addressed. In a keynote offered at the 36th annual general meeting of the International Swaps and Derivatives Association, Hernández de Cos explained that there needs to be a swift move to regulate cryptocurrency and decentralized finance markets before they can grow to affect the financial stability of the economic system.
On this issue, he stated:
Despite this phenomenal growth, cryptoassets still represent only about 1% of total global financial assets, and banks’ direct exposures are relatively limited to date. Yet we know that such markets have the potential to scale up rapidly and pose risks to individual banks and overall financial stability.
Furthermore, the governor recommended a “proactive and forward-looking regulatory and supervisory approach” to the subject, declaring that there can be a balance between welcoming these technologies and also mitigating their risks.
Criticizing Crypto and Defi
Hernández de Cos also took the opportunity to criticize the current state of the cryptocurrency market, citing the crypto fever meme currencies like dogecoin caused in the crypto crowd and the effect that Elon Musk’s thoughts can have on these markets. He remarked:
How many $3 trillion asset classes exhibit wild swings in valuations based on seemingly odd events, such as tweets published on 20 April or Saturday Night Live skits?
To him, these are clear signs that the market is not so decentralized as it aims to be, and that traits such as “robustness” or “stability” cannot be attributed to cryptocurrencies.
This is not the first time that the Governor of the Bank of Spain has talked about the dangers of introducing traditional financial institutions to cryptocurrencies. Back in February, Hernandez de Cos also warned about this issue, stating that an increase in the exposure of private banks to crypto could introduce new equity and reputational risks.