Crypto fears reality now, says central bank BIS:
Recent implosions in the cryptocurrency markets indicate that the long-warned dangers of decentralized digital money are now becoming a reality, the Bank for International Settlements has said.
The BIS, the global umbrella body for central banks, sounded the warning in an upcoming annual report, in which it also urged greater efforts to develop attractive digital currencies for central banks.
BIS CEO Agustin Carstens pointed to recent collapses in the TerraUSD and luna stablecoins, and a 70 percent drop in bitcoin, the benchmark for the crypto market, as indicators of a structural problem.
Without a government-backed authority that can use reserves financed by taxes, any form of money is ultimately not credible.”
“I think all of these weaknesses that were pointed out earlier have pretty much become a reality,” Carstens told Reuters. “You just can’t defy gravity… At some point you really have to face the music”.
Analysts estimate that the total value of the crypto market has fallen by more than $2 trillion since November as the problems have intensified.
Carstens said the meltdown was not expected to create a systemic crisis the way bad loans caused the global financial crash. But he stressed that the losses would be significant and that the opaque nature of the crypto universe was fueling the uncertainty.
“Based on what we know, it should be fairly manageable,” said Carstens. “But there are a lot of things we don’t know.”
Central Bank Digital Currencies (CBDCs)
The BIS has been a long-standing skeptic of cryptocurrencies, and its report laid out its vision for the future monetary system — one where central banks use the technical advantages of bitcoin and its ilk to create digital versions of their own currencies.
About 90% of monetary authorities are now investigating CBDCs as they are known. Many hope it will equip them for the online world and ward off cryptocurrencies. But the BIS wants to coordinate important matters, such as ensuring that they work across borders.
The immediate challenges are mainly technological, similar to how the cell phone world needed standardized encryption in the 1990s. But there is also the geopolitical issue, as relations between the West and countries like China and Russia are declining.
“This (interoperability) is a topic that has been on the G20 agenda for quite some time… so I think there’s a good chance this will continue,” said Carstens, adding that there are some “real” life ” trials with different CBDCs in the past year.
When asked how long it will take to agree international standards for CBDC interoperability, he said: “I think in the next few years. Probably 12 months is too short.”
