- The BIS report stated that Crypto’s security risks, high fees, and scalability issues, and unregulated intermediaries that pose financial risks are growing concerns in today’s monetary system.
- According to BIS’ Economic Adviser and Head of Research Hyun Song Shin, “Anything that crypto can do, CBDCs can do better.”
- The report stressed that the future of the monetary system lies with CBDCs, where central banks utilize the tech benefits of bitcoin and create digital versions of their own currencies.
On June 21, Bank of International Settlements(BIS) released a report titled “The Future of Monetary System.” According to the report, structural flaws in Crypto make it an unsuitable basis for a monetary system. “Crypto cannot serve the purpose of money in the sense that it doesn’t recreate this virtuous circle from greater acceptance to greater use.”
The BIS in its report, added that the recent crash of TerraUSD and luna ‘stablecoins’ and the current market turmoil indicate Crypto’s volatility. According to the BIS report, Crypto’s security risks, high fees, scalability issues, and unregulated intermediaries that pose financial risks” are growing concerns in today’s monetary system.
Making a comment on stablecoin, the report stated that stablecoins attempt to piggyback on the stability of real money issued by central banks. The report further adds that crypto universe lacks a nominal anchor, which it tries to import, imperfectly, through stablecoins.
BIS On CBDCs
According to BIS’ Economic Adviser and Head of Research Hyun Song Shin, “Anything that crypto can do, CBDCs can do better. They can do this without selling coins to users and without all the other structural flaws” BIS stated that the future of the monetary system lies with Central Bank Digital Currencies (CBDCs), where central banks utilise the tech benefits of bitcoin and create digital versions of their own currencies.
The report 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 report further looked into 4 projects that examined wholesale central bank digital currency (CBDC) transfers across borders. Jura project involving the central banks of Switzerland and France, Project Inthanon- LionRock2, mBridge project, and Project Dunbar was examined in BIS’s latest report. The CBDC projects looked at the potential of cross-border payment and offshore payments.
While detailing how to design retail CBDCs to support financial inclusion, the BIS report stated that CBDCs foster interoperability domestically and across borders, thus contributing to greater competition and lower costs for end-users. According to the report, the principles behind the construction of multi-CBDC platforms illustrate the potential for decentralisation to be applied constructively
While explaining central banks involvement in CBDC adoption, the BIS report notes that globally, 90% of central banks surveyed recently are doing some form of work on wholesale or retail CBDCs. The report further acknowledged the need for strong cooperation between central banks and innovation in the private sector to achieve frictionless payments in the global monetary system.
CBDC Adoption Worldwide
Despite CBDC projects being only in early stages in most major economies, its popularity is increasing by each passing day. Around 90% of the world’s monetary authorities are now exploring the potential CBDC. In the Bahamas, the Sand Dollar—the local CBDC—has been in circulation for over a year. Riksbank in Sweden has also developed a proof of concept and is exploring the technology and policy implications of CBDC.
China is currently testing its own digital currency, eCNY. Jamaica’s central bank has recently officially recognised the “Jam-Dex” central bank digital currency as legal tender, becoming the first country to do so. The Bank of Israel had also expressed its interest in CBDCs by stating that the CBDC architecture is assumed to have several benefits, including less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access.