TL;DR Breakdown
- The manager of BIS says Bitcoin may break down.
- Carstens also highlights the challenges posed by Stablecoins.
- Central banks should be issuing digital currency.
The Bank for International Settlements (BIS) has warned crypto investors to be wary of Bitcoin as the leading crypto asset may break down. This was said in a speech delivered for Hoover Institution by the bank manager, Agustin Carstens.
Carstens says Bitcoin could break down
According to Carstens, Bitcoin would become more vulnerable to attacks as it approaches its total 21 million supply. This would not be the first time that the BIS manager would be critical of the crypto asset.
In 2018, he had called the digital asset a bubble, a Ponzi scheme, and an environmental disaster. He also added that the crypto asset was unfit to take the place of money because of its volatility, high transaction cost, and the lack of protection for consumers and investors. He then concludes by saying that crypto assets are not a viable store of values or units of accounts. Central banks plus financial authorities should pay particular attention to the ties between these assets and fiat currencies.
Carstens also highlights that stablecoins also pose some troubles, especially when a private institution is backing it; this raises governance. He cited the example of Libra proposed by Facebook as one of such Stablecoins with such troubles.
Carstens urges Central Banks to issue CBDC
The BIS manager has urged the central banks of the world’s countries to issue their own central bank digital currency (CBDC). According to Carstens, if there is any need for a digital currency, central banks should be the ones issuing them.
It should be noted that countries across the world have already begun working on a CBDC project. These countries are looking to take advantage of the advancements made in Blockchain and cryptocurrency like Bitcoin to produce a digital currency that will effectively complement their fiat currency.
China is currently leading the pack with its Digital Yuan project. The Asian country has already begun running a second test of the Digital Yuan. The authorities had earlier carried out a test run of the asset in October 2020. Then, $3 million worth of the digital yuan was shared to 100,000 citizens of the country via a lottery scheme.
Other countries like Japan, Russia, the Bahamas, and a host of others have also recorded growth in their pursuit of a national digital currency. The BIS has set up hubs to research these projects.
The Bank of International Settlement is a Basel-based bank that acts as a central bank for the countries’ apex bank.
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