As central banks across the globe are now admitting they failed to keep inflation under control and by sharply rising rates threaten to push economies into recession, they now claim that they are the main source of trust in the monetary system.
The Bank for International Settlements (BIS), sometimes referred to as ‘the central bank of central banks’, is out with a new report where it bashes the crypto industry while promoting what it calls “a brighter vision of the future monetary system” through central bank digital currencies (CBDCs).
In the report, the BIS wrote that the monetary system of the future “must meet a number of high-level goals to serve society.” Specifically, the report stressed that a future CBDC must be “safe and stable,” and said “key entities must be held accountable for their actions.”
The BIS stressed that «at the heart of the monetary system stands the central bank» and «trust in the monetary system is ultimately
grounded in trust in the central bank.»
The institution is advocating for financial and payment «innovations grounded in trust in the central bank» and claims that «retaining this trust is at the core of central bank mandates.»
«The Bank of International Settlements recognizes Bitcoin is a competitor to central banks with this statement,» Bitcoin analyst Willy Woo reacted.
In either case, the BIS’ vision for future CBDCs was part of a chapter on “the future monetary system” in its wide-ranging Annual Economic Report 2022.
“Fast, reliable and cheap transactions should promote efficiency and financial inclusion, while users’ rights to privacy and control over data must be upheld,” the BIS report went on to say. It added that CBDCs “must be adaptable and open.”
“A decade hence, users may take realtime, low-cost payments for granted, and payments across borders may be as seamless as the cross-border exchange they support. Consumer choice in financial services should be increased, and innovation will continue to push the frontiers of what is possible,” the BIS wrote about the monetary system it envisions.
It went on to call its idea for future CBDCs “a brighter vision of the future monetary system.”
Commenting on cryptocurrencies as we know them today, the BIS report said recent turbulence in the market has revealed “structural flaws” in their design.
It claimed that these flaws are preventing crypto from “achieving the levels of stability, efficiency or integrity required for a monetary system.”
As an example of this, the report mentioned “the prevalence of stablecoins” in the crypto ecosystem, explaining that this indicates a need “to piggyback on the credibility provided by the unit of account issued by the central bank.”
It added that the collapse of Terra token has “underscored the weakness of a system that is sustained by selling coins for speculation.”
“Instead of serving society, crypto and DeFi are plagued by congestion, fragmentation and high rents, in addition to the immediate concerns about the risks of losses and financial instability,” the report said.
The BIS has for a long time worked on a so-called multi-CBDC project known as Project Dunbar, where the idea is to tie together CBDCs from multiple jurisdictions. It has stated that it ultimately envisions “a series of regional” multi-CBDC platforms with some level of interoperability between them.
In March this year, the BIS said that Project Dunbar so far has focused more on identifying problems than solving them, and that it has created “more questions than answers.”