Crypto fears now materialising, central bank body BIS says

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LONDON, June 21 (Reuters) — Recent implo­sions in the cryp­tocur­ren­cy mar­kets indi­cate that long-warned-about dan­gers of decen­tralised dig­i­tal mon­ey are now mate­ri­al­is­ing, the Bank for Inter­na­tion­al Set­tle­ments has said.

The BIS, the glob­al umbrel­la body for cen­tral banks, sound­ed the warn­ing in an upcom­ing annu­al report, in which it also urged more effort in devel­op­ing appeal­ing cen­tral bank dig­i­tal currencies.

BIS gen­er­al man­ag­er Agustin Carstens point­ed to recent col­laps­es of the Ter­raUSD and luna ‘sta­ble­coins’, and a 70% slump in bit­coin, the bell­wether for the cryp­to mar­ket, as indi­ca­tors that a struc­tur­al prob­lem exists.

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With­out a gov­ern­ment-backed author­i­ty that can use reserves fund­ed by tax­es, any form of mon­ey ulti­mate­ly lacks credibility.”

“I think all these weak­ness­es that were point­ed out before have pret­ty much mate­ri­alised,” Carstens told Reuters. “You just can­not defy grav­i­ty… At some point you real­ly have to face the music”.

Ana­lysts esti­mate that the over­all val­ue of the cryp­to mar­ket has slumped more that $2 tril­lion since Novem­ber as its trou­bles have snow­balled. read more 

Carstens said the melt­down was not expect­ed to cause a sys­temic cri­sis in the way that bad loans trig­gered the glob­al finan­cial crash. But he stressed loss­es would be size­able and that the opaque nature of the cryp­to uni­verse fed uncertainty.

“Based on what we know, it should be quite man­age­able,” Carstens said. “But, there are a lot of things that we don’t know.”

Reuters Graph­ics

CENTRAL BANK DIGITAL CURRENCIES (CBD­Cs)

The BIS is a long-term scep­tic of cryp­tocur­ren­cies and its report laid its vision for the future mon­e­tary sys­tem — one where cen­tral banks utilise the tech ben­e­fits of bit­coin and its ilk to cre­ate dig­i­tal ver­sions of their own currencies.

Rough­ly 90% of mon­e­tary author­i­ties are now explor­ing CBD­Cs as they are known. Many hope it will equip them for the online world and fend off cryp­tocur­ren­cies. But the BIS wants to coor­di­nate key issues such as mak­ing sure they work across borders.

The imme­di­ate chal­lenges are main­ly tech­no­log­i­cal, sim­i­lar to how the mobile phone world need­ed stan­dard­ised cod­ing in the 1990s. But there is also the geopo­lit­i­cal issue as rela­tions between the West and coun­tries such as Chi­na and Rus­sia wane.

“This (inter­op­er­abil­i­ty) is a top­ic that has been on the G20 agen­da for quite some time.. so I think there is a good chance for this to move for­ward,” Carstens said, adding how there had been a num­ber of “real-life” tri­als with dif­fer­ent CBD­Cs over the last year.

Asked how long before inter­na­tion­al stan­dards for CBDC inter­op­er­abil­i­ty might be agreed, he said: “I think in the next cou­ple of years. Prob­a­bly 12 months is too short.”

Cryp­to vs CBDCs
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Report­ing by Marc Jones;
Edit­ing by Bernadette Baum

Our Stan­dards: The Thom­son Reuters Trust Principles.

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