Home Finance U.S. regulators flag climate change, stablecoins as potential systemic risks

U.S. regulators flag climate change, stablecoins as potential systemic risks

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U.S. one greenback banknotes are seen in entrance of displayed GameStop emblem on this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photograph

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WASHINGTON, Dec 17 (Reuters) – Local weather change, the speedy progress of “stablecoins” and monetary improvements that led to frenzied buying and selling of GameStop Corp shares early this yr are threats to the U.S. monetary system that benefit nearer scrutiny, a Treasury Division-led regulatory panel mentioned on Friday.

In its annual report, the Monetary Stability Oversight Council (FSOC) added that whereas the U.S. economic system has improved because the onset of the COVID-19 pandemic, dangers to the monetary system are increased than previous to the well being disaster, with the outlook for world progress nonetheless unsure.

The report marked the primary time the physique, which was created within the wake of the 2007-2009 monetary disaster to identify looming threats, has flagged local weather change as a serious danger, reflecting President Joe Biden’s push to handle rising world temperatures.

The FSOC, which contains the Treasury and different monetary regulators, mentioned the bodily dangers posed by extra frequent extreme climate occasions and authorities insurance policies transitioning away from carbon-heavy trade might dent asset values and weaken establishments, it wrote, echoing an paper.

“If these adjustments happen in a disorderly approach owing to substantial delays in motion or abrupt adjustments in coverage, their influence is prone to be extra sudden and disruptive,” the FSOC mentioned.

Equally, the physique reiterated considerations flagged in that stablecoins, a fast-growing kind of digital asset pegged to conventional currencies, might grow to be a risk if extensively adopted.

Whereas that market is presently solely value about $127 billion, its market worth has ballooned greater than 500% over the previous 12 months and could also be susceptible to runs if buyers lose confidence within the asset class’s reliability, the FSOC mentioned.

The physique additionally famous a surge of volatility this yr sparked by retail buyers, who coordinated on social media and used zero-commission buying and selling apps to gasoline sharp rises in a handful of shares, together with videogame maker GameStop.

The episode steered monetary improvements and social media are altering market participation, elevating the chance of sudden asset value actions unrelated to elementary information.

That “might characterize a vulnerability in the event that they result in cascading impacts by inflicting asset liquidations or placing stress on monetary establishments,” the FSOC wrote.

Reporting by Pete Schroeder; Enhancing by Michelle Worth and Paul Simao

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