The Bank of International Settlements (BIS), a transnational institution owned by and comprised of central banks that seeks to “fosters international monetary and financial cooperation and serves as a bank for central banks,” recently published its quarterly review of “International banking and financial market developments” for June 2018. The report includes an op-ed written by BIS general manager Agustín Carstens that describes many cryptocurrencies as comprising “get-rich-quick schemes” that “should not be conflated with the sovereign currencies and established payment systems that have stood the test of time.”
BIS General Manager Critical of New Cryptocurrencies
Mr. Carstens’ article opens with a recognition that popular confidence in legacy financial institutions has been undermined by contemporary innovations in communications and technology, such as cryptocurrency, stating that “preserv[ing] trust in financial transactions is a tricky business in our digital age.”
The BIS general manager asserts that “With new cryptocurrencies proliferating, it’s as important to educate the public about good money as it is to build defences against fake news, online identity theft, and Twitter bots.”
“Conjuring up new cryptocurrencies is the latest chapter in a long story of attempts to invent new money, as fortune seekers have tried to make a quick buck,” Mr. Carstens continued. “It has become the alchemy of the age of innovation, with the promise of magically transforming everyday substances (electricity, in this case) into gold (or at least euros).”
“Private Cryptocurrencies Struggle to Earn Public Trust”
Mr. Carstens argues that “What makes currencies credible is trust in the issuing institution, and successful central banks have a proven record of earning this public trust.”
By contrast, the BIS general manager claims that “Many cryptocurrencies are ultimately get-rich schemes” that “should not be conflated with the sovereign currencies and established payment systems that have stood the test of time.”
“The short experience of cryptocurrencies shows that technology, however sophisticated, is a poor substitute for hard-earned trust in sound institutions.”
Central Banks Explore Blockchain Technology
Mr. Carstens states that “Currently, central banks around the world are working on systems for retail payments that will allow instant transfers, anytime and anywhere. They are also actively testing the distributed ledger technology underlying cryptocurrencies – not as a substitute for the current system, but to build on it.”
The BIS general manager concludes that “Even in this digital age, trust in the issuing institution matters and will continue to underpin currencies. Central banks, for their part, will have to continue earning that public trust by closely guarding their currency’s value.”
Mr. Carstens added that the BIS would be providing further elaboration regarding its opinions pertaining to cryptocurrency in a “special section” of its annual report on June 17th.
Do you think that cryptocurrency undermines the financial hegemony of central banks? Share your thoughts in the comments section below!
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