January 29, 2021 | AtoZ Markets – Bank for International Settlements (BIS) President Agustin Carstens said central banks should play a leading role in the development and issuance of digital currencies, writes Bloomberg.
The development of government stablecoins is on the agenda of many central banks. Given the rapid development of the digital currency industry, banks are exploring various options for using their own stablecoins and assessing their possible risks to the financial system.
Bitcoin Might Crash Sooner or Later
Speaking at a workshop hosted by the Hoover Institution on January 27, Carstens said that for digital money to legitimately exist, central banks must control it themselves and play a key role in its development.
According to Carstens, regulators will ensure the stability of the coin rate, ensure the flexibility of the aggregate supply of such money and monitor the security of the system as a whole. Such a system will not allow failures and serious errors. Central banks and existing financial infrastructure are better suited to ensure the stability and trust of digital currencies, as opposed to a completely decentralized network.
The BIS president also believes that Bitcoin is a speculative asset that has nothing to do with money.
“Investors must be cognizant that Bitcoin may well break down altogether,” because the system becomes vulnerable to majority attacks as it gets close to its maximum supply of 21 million coins,” said Carstens.
The head of the BIS called private stablecoins much more reliable than Bitcoin. At the same time, Carstens is opposed to stable cryptocurrencies, believing that they will not be able to become a reliable basis of the monetary system. Some use cases for stablecoins can be effective, but they need to be tightly controlled to be credible. Carstens believes that only central banks will be able to provide the foundation on which digital currencies can rely, and only in this way can they become part of the existing financial system.
Agustin Carstens Changes Stance on Cryptocurrencies
In 2019, Carstens expressed fears that central banks might lose their influence due to the emergence of private cryptocurrencies. He also said that banks should not issue their own digital currencies, since people will start withdrawing money from state banks and investing it in private financial institutions.
However, now the head of BIS has changed his mind, saying that it is unrealistic to completely replace all bank accounts and cash with digital currencies. Carstens is confident that government digital currencies will complement the current financial system.
According to a recent BIS survey, 86% of central banks are actively exploring the possibility of issuing digital currency. In addition, the BIS Innovation Center began developing an international platform for testing digital currencies of Central Banks.
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