Should banks develop their own Central Bank Digital Currency (CBDC)? Not according to Agustin Carstens, General Manager of the Bank of International Settlements (BIS) who once likened Bitcoin to “a bubble, a Ponzi scheme and an environmental disaster”. He gave his views at a speech in Dublin, reported on by Bloomberg.
He said that virtual currencies go against everything a bank stands for, would decrease financial stability and could prevent banks from implementing customer safety policies.
“There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system,” he said.
He believes crypto could alter how interest rates impact on the demand for money and it could produce larger central bank balance sheets because people would move their money into commercial banks. This event would lead to a necessary asset buildup, which in turn, would alter market liquidity.
Some Central Banks Are Adopting Digital Currencies, Regardless Of BIS
He said that central banks should not put the brakes on innovation just “for the sake of it” but neither should they “speed ahead disregarding all traffic conditions”. However, some central banks are speeding ahead, knowing where the future lies, with many having already created a CBDC or have announced plans to do so.
One such example is the Eastern Caribbean Central Bank who will be conducting a CBDC pilot across Eastern Caribbean Currency Union (ECCU) member countries. Another is JP Morgan Chase who have already introduced the JPM Coin, the first cryptocurrency to be rolled out by a major U.S. bank.
A report published by BIS earlier this year showed that a majority of central banks are collaboratively looking at the implications of a central bank digital currency. The report does concede that the views expressed are “those of the authors and not necessarily the views of the BIS”.
“Although many have reached the stage of considering practical issues, central banks appear to be proceeding cautiously and few report plans to issue a digital currency in the short or medium term”.