• Tue. Aug 2nd, 2022

Cryptocurrencies have ‘deeper structural deficiencies’, says Bank for International Settlements

ByHazel R. Lang

Jun 23, 2022
Digital bank

The Central Bank Cooperation has issued harsh criticisms regarding the viability of cryptocurrency, while offering Central Bank Digital Currencies (CBDCs) as a reasoned alternative.

Image source: Kanchanara/Unsplash.

The Bank for International Settlements (BIS) has stated that cryptocurrencies have deeper structural deficiencies that have been demonstrated against the backdrop of the current market turmoil affecting the space.

The combined value of cryptocurrencies has fallen by around $350 billion in the past two weeks, and many major companies in the industry such as Coinbase have downsized in recent months.

The organization highlighted a variety of issues in its annual economic report, including “unregulated or non-compliant intermediaries” as well as “structural limits that prevent these currencies from growing.”

The BIS recognized some advantages of cryptocurrencies, including “innovations such as the ability to schedule payments”, but concluded that “they cannot meet high-level requirements, such as security, accountability , efficiency, inclusion and openness, for a usable digital currency system”.

As an alternative, the BIS said a “digital version of central bank-issued money could provide many of the same features offered by cryptocurrencies and stablecoins.” This is commonly referred to as a central bank digital currency (CBDC).

The BRI said this CBDC could “be built on a strong nominal anchor and avoid the structural limitations and risks of crypto, which include congestion, high fees, fragmentation and pseudo-anonymity, characteristics that can also facilitate abuse and illicit activities”.

Despite the BRI’s endorsement, some bodies in the UK have poured cold water on the idea of ​​a UK CBDC.

The cross-party Lords Economic Affairs Committee said there was “no convincing argument as to why the UK needs a central bank digital currency”.

Either way, the idea of ​​CBDCs is gaining traction internationally.

The BIS report found that around 80% of central banks around the world are exploring the concept of CBDCs.

“Innovation is not just a buzzword or a fad,” said Hyun Song Shin, economic adviser and head of research at BRI. “It must never lose sight of the concrete needs of users in the real economy.”

“Central banks are looking to push the boundaries of what is possible, embracing new capabilities while ensuring the stability and interoperability of financial services domestically and internationally.”

The full BRI report is due out on June 26.

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