Economy

Central Bank Cryptocurrencies Pose Stability Risk, Says Bank For International Settlements

Central Bank Cryptocurrencies Pose Stability Risk, Says Bank For International Settlements”

"Central bank digital currencies could help make settling trades of securities and foreign exchange more efficient in the future", said Benoit Coeure, chair of the Committee on Payments and Market Infrastructures (CPMI), part of BIS. Now such transactions use a massive and complex web of critical infrastructure - much of it based in London - which could in theory become defunct (or at least see major reductions) if the need for a trusted middleman is removed.

"General objective central bank digital currencies could revolutionize the way money is provided and the role of central banks in the financial system", said Coeure.

The BIS report was released ahead of the G20 summit in Buenos Aires on March 19-20, where the topic of crypto regulation is on the agenda.

Last night the world's top central bank, the Bank for International Settlements in Basel, said that while digital currencies may have some merit in terms of new efficiencies, it warned against central banks around world jumping on the bandwagon without thoroughly researching the implications.

It has considered the move due to a decline in the use of cash in Sweden.

Opinions about issuing CBDCs diverge greatly. Sweden's central bank, the Rijksbank, is studying the possibility of issuing an e-krona.

Research from the Bank of Canada suggests a central bank digital currency (CBDC) has the potential to become a cheaper and easier to use alternative to cash and cards.

Mark Carney, the Governor of the Bank of England, who is also chair of the BIS global economy meeting and of the Financial Stability Board, said that while a central-bank digital currencies needed careful consideration, a more immediate priority is how to use the new technologies to meet the current demand for fully reliable, real-time payments.

The issuance of CBDCs probably wouldn't change the basic mechanisms for carrying out monetary policy, the BIS said.

A CBDC "could allow for "digital runs" towards the central bank with unprecedented speed and scale", the BIS said.

Central bank cryptocurrencies could cause deposits to flow out of traditional banks and endanger the stability of the financial system at the next crash, according to an influential central bank body.

The BIS also highlighted that, like banknotes, digital currencies can fall victim to illegalities-as a direct target or a means of transaction.

The report calls for "robust mitigation methods" before central bankers consider offering official digital currencies. The Fed's Powell said past year that "governance and risk management will be critical" for cryptocurrencies.

Central banks should steer clear of developing their own digital currencies for issue to the general public the Bank for International Settlements has warned.

"The potential effect of fraud could be more significant because of the ease with which large amounts could be transferred electronically", states the report by the BIS, which is often described as the central bank of central banks.



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