Central Bank Cryptocurrencies Pose Stability Risk, Says Bank For International Settlements
The Bank for International Settlements (BIS) said central banks should think hard about potential risks and spillovers before issuing their own digital currency.
The BIS is an international financial institution owned by central banks which “fosters international monetary and financial cooperation and serves as a bank for central banks.” It carries out its work through its meetings, programs and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction.
In a report on Monday, the BIS said that digital currency could one day be issued by policy makers for tasks such as settling payments among financial institutions. But at the same time, it warned that cryptocurrencies might destabilize traditional lenders if offered widely to the general public.
“A general purpose central-bank digital currencies could give rise to higher instability of commercial bank deposit funding,” the BIS stated. “Even if designed primarily with payment purposes in mind, in periods of stress a flight towards the central bank may occur on a fast and large scale, challenging commercial banks and the central bank to manage such situations.”
Benoit Coeure, a European Central Bank board member who chairs the BIS Committee on Payments and Market Infrastructures, said a central bank-issued digital currency could help make settling trades of securities and foreign exchange more efficient in the future. But more work and experimentation would be needed to explore these benefits.
Coeure said that no central bank has so far decided to issue a cryptocurrency. Although the Riksbank in Sweden, where the use of cash has fallen, is studying a retail e-krona for small payments. It said last month its study won’t be finalized until late 2019, later than initially indicated.
The report also said that blockchain technology could be used to raise the efficiency of securities and derivatives transactions. However, the report found that the new clearing models are at this point “not clearly superior” to the existing model.
Mark Carney, the Governor of the Bank of England, who is also chair of the BIS global economy meeting and of the Financial Stability Board, said that while a central-bank digital currencies needed careful consideration, a more immediate priority is how to use the new technologies to meet the current demand for fully reliable, real-time payments.
The BIS report was released ahead of the G20 summit in Buenos Aires on March 19-20, where the topic of crypto regulation is on the agenda.
“Investor protection along with anti-money laundering and terrorist financing safeguards are the priority, while consideration of cryptocurrencies’ underlying and futures markets would come later, Coeure said. “So any discussion in the G20 next week will be likely to be forward looking, discussing the pros and cons of regulation, but don’t expect concrete action, it’s more about comparing experiences so far.”
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