Impact of Cryptocurrency on Global Financial Stability: Analyze Regulatory Responses and Their Effectiveness in Managing Risks Associated with Cryptocurrencies

Abstract

Cryptocurrencies are rapidly developing into the financial systems all over the world and, therefore, can be regarded as alarming authorities and financial supervisory agencies. This paper focuses on the complex relationship between the increasing use of cryptocurrencies and the fluctuations of the world economy. It explores the industry's fundamentally low relative volatile nature that includes cryptocurrencies, risks of hacking attacks, frauds and money laundering that disrupt classical economical system frameworks. The emphasis is made on the regulatory activity in various areas, evaluating the efficiency of these measures in minimizing the identified risks. Thus, based on the analysis of the regulatory frameworks of the countries, which have different economic conditions and the level of using cryptocurrencies, those should be defined, which are successful and which difficulties may be encountered at the legislative level. Therefore, the results indicated that while some measures of regulations, which have been implemented in order to increase both market transparency and investors' protection, proved to be effective, others have been consistently failing to adapt to the fast-growing phenomenon of digital currencies. At the end of the paper, the author presents a set of proposals concerning a comprehensive international regulation that should take into account the peculiarities of the examined phenomenon while providing a proper balance between creation and constraint. This paper adds to literature on financial stability and presents findings regarding the strategies that need to be adopted to create sound policies to tackle the challenges of the cryptocurrency market.