The Bank for International Settlements (BIS), the global organization of central banks, claims that the weaknesses in crypto that were previously pointed out are “pretty much real.” BIS Managing Director Agustin Carstens said, “You just can’t defy gravity… At some point you really have to face the music.”
UP to crypto weaknesses
The Bank for International Settlements (BIS) has warned that a perceived danger from decentralized digital money is materializing.
The BIS said in its annual economic report released on Tuesday that the crypto market sell-off and collapse of cryptocurrency Terra (LUNA) and algorithmic stablecoin Terrausd (UST) are indicators of a structural problem in crypto.
“Structural flaws make the crypto universe unsuitable as a basis for a monetary system: it lacks a stable nominal anchor, while limited scalability leads to fragmentation. Contrary to the decentralization narrative, crypto often relies on unregulated intermediaries that pose financial risks,” the BIS report reads.
Agustin Carstens, the BIS director-general, said in an interview with Reuters on Tuesday that any form of money without a government-backed agency that can use tax-funded reserves ultimately lacks credibility. He mean:
I think all of those weaknesses that were pointed out earlier pretty much materialized.
The BIS exec continued, “You just can’t defy gravity… At some point you really have to face the music.”
Carstens does not believe that the collapse of the crypto market will trigger a systemic crisis like bad loans triggered the global financial crash. He stated:
Based on what we know, it should be pretty manageable. But there are many things we don’t know.
The BIS Board continued to talk about central bank digital currencies (CBDCs). In a report published in May, the BIS said nine out of ten central banks globally are exploring their own digital currencies.
“This is an issue that has been on the G20 agenda for quite some time,” Carstens told the news outlet, adding that “there is a good chance this will move forward.” He pointed out that some countries have already conducted “real” trials of their central bank digital currency.
Carstens believes there will be international standards for CBDCs “in the next few years,” noting that 12 months is likely “too short.”
This week, the BIS Innovation Hub announced that its Eurosystem Center projects will study cryptocurrency markets. Citing that “the collapse of many stablecoins and decentralized finance (Defi) platforms has highlighted the difficulty in assessing their risks and economic potential,” the BIS described: “The goal of the project is to create an open-source platform for market intelligence to shed light on market capitalisations, economic activity and risks to financial stability.”
What do you think of the statements made by BIS Managing Director Agustin Carstens? Let us know in the comments section below.
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