The Bank for International Settlements (BIS) has issued a report stating that digital tokens could be used in the future for settling payments between traditional financial institutions. The Basel, Switzerland-based international financial institution also highlighted that central banks should try to embrace digital currencies. However recognizing them as legal tender is still years away, if it’s possible at all.
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BIS: Cryptocurrency Is Not the Answer to Cashless Society
The report points that the BIS is watchful of central banks issuing their own digital tokens. Moreover, it also cautioned that digital currencies could disrupt the traditional financial ecosystem if offered directly to the public.
Benoit Coeure, executive board member of the European Central Bank, noted, “General-purpose central-bank digital currencies could revolutionize the way money is provided and the role of central banks in the financial system, but these are uncharted waters,”
The BIS report warned that before launching central bank digital currencies (CBDCs), there is still need a crying need for “experimentation and experience”.
At the G20 meeting on March 19-20th March in Bueno Aires, Argentina, finance ministers of the world’s top 20 economies intend to discuss regulating digital tokens, and how it could help the current financial ecosystem.
New technologies have long tried to battle to uproot the traditional financial system. Another BIS opinion piece co-authored by executive board member of the European Central Bank Benoit Coeure and chair of Switzerland’s Bank for International Settlements Markets Committee Jacqueline Loh, stated that cash is not permanent. Something will replace it but it’s not bitcoin, they wrote. It underlined that Bitcoin and its crypto cousins are not the answer to the cashless ecosystem.
Issuing CBDCs Could Amplify a Financial Crisis
Central banks differ over the virtues of issuing their own virtual tokens. According to a Bloomberg report, Bank of England governor Mark Carney and Federal Reserve chairman Jerome Powell highlighted that the idea of issuing CBDCs needs careful considerations.
Meanwhile, world’s oldest central bank, Sweden’s Sveriges Riksbank, is mulling a digital token called “e-krona”.
Even though virtual currencies propose to efficiently perform settlement of securities and derivatives transactions, for now, they haven’t proved to be better than the existing system.
BIS claimed if CBDCs are issued, it would be like adding fuel to fire, as it would augment any crisis in the legacy financial system. People would move from cash to digital tokens, creating an imbalance in the financial ecosystem.
As reported in Bloomberg, the BIS said: “A CBDC could allow for ‘digital runs’ towards the central bank with unprecedented speed and scale. Even in the presence of deposit insurance, the stability of retail funding could weaken because a risk-free CBDC provides a very safe alternative.”
In a nutshell, the BIS urged central banks to experiment with new digital innovations. However, it warned them that issuing CBDCs could be an innovation too far.
Will Central Banks move forward with adopting blockchain endorsed digital tokens? Let us know your thoughts on the same.
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