Bitcoin is not money – it is a speculative asset that can be used by organized crime to launder money and launch ransomware attacks, says the world’s leading organization of central banks.
- According to BIS, cryptocurrencies are fragmenting currency systems in a negative way
- It urges central banks to consider issuing digital currencies to their citizens
- It is said that it is important to maintain public confidence in monetary institutions
It has urged central banks like the Reserve Bank of Australia (RBA) to develop their own digital currencies to meet the needs of citizens drawn to cryptocurrencies.
The Bank for International Settlements (BIS) has published a scathing review of cryptocurrencies, stating that their growing popularity is a problem for the global financial system.
Report in digital currencies
In a new report on digital currencies, the BIS encouraged the growth of ‘central bank digital currencies’ (CBDCs), saying that, in digital form, they deliver the benefits of central bank money – integrity, liquidity and settlement accuracy – while maintaining public confidence in the monetary system.
However, she cautioned that the landscape is changing rapidly, with interest in alternative forms of currency growing.
“It is now clear that cryptocurrencies are more speculative assets than money and are used in many cases to facilitate money laundering, ransomware attacks and other financial crimes,” it said.
“Bitcoin in particular has few redeeming properties of public interest when one takes into account its wasteful energy footprint.”
Stablecoins and Big Tech
The BIS said other developments are contributing to the changing currency landscape.
Behind ‘DeFi’ and the technology behind Bitcoin
Large companies are exploring blockchain technology as investors prefer “decentralized finance” that lawyers and bankers can lose their jobs.
“Stablecoins” and the entry of large technology companies (Big Techs) into payment and financial services were highlighted.
It warned stablecoins – which are supposedly pegged to a national currency like the U.S. dollar to reduce volatility – have their own problems.
“Stablecoins try to import credibility by being backed by real currencies. As such, these are only as good as the governance behind the promise of support, ”the report says.
“They also have the potential to fragment the liquidity of the monetary system and undermine the role of money as a coordination tool.
“As far as the alleged backing is conventional money, stablecoins are ultimately only an appendage of the conventional monetary system and not a game changer.”
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It warned that big tech’s entry into financial services could be a big problem.
It is said that the amount of data big tech companies have about their customers could be used to further strengthen their power in advancing into financial services by pulling data from their existing businesses into ecommerce, messaging, social Use media or search to give them a competitive edge.
“The availability of vast amounts of user data poses another major problem – that of data governance,” the report said.
“Apart from the economic consequences, securing privacy against unjustified interference by both commercial and state actors has the attributes of a fundamental right.
“For these reasons, the topic of data governance has become a central concern of public policy.
“When US consumers were asked in a representative survey who they trust to protect their personal data, the respondents said that they trust big tech the least,” it says.
RBA is already experimenting
In November, the RBA announced It partnered with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software (a blockchain technology company) to explore the potential use of a wholesale form of central bank digital currency (CBDC).
It wanted to test how a CBDC could be used by wholesale market participants (i.e. other banks) to fund, settle and repay loans between the RBA and among themselves.
It is expected to publish a report on its pilot project within weeks.
However, the BIS said that while wholesale CBDCs were worthwhile innovations, if central banks offered digital currencies to retail customers it would be a “wider innovation”.
The retail CBDCs would have modified the conventional two tier monetary system by making digital money from central banks available to the public, just as cash was available to the public as a direct claim to the central bank.
“There are two flavors of retail CBDCs,” the BIS report said.
“One option is a cash-like design that enables so-called token-based access and anonymity for payments. This option would allow individual users to access the CBDC based on a password-like digital signature using private public key cryptography without the need for personal identification.
“The other approach is based on verifying the identity of the users (‘account-based access’) and would be rooted in a digital identity scheme.
“This second approach is more compatible with monitoring illegal activity in a payment system and would not preclude privacy: by properly designing the payment authentication process, personal transaction data could be protected from commercial parties and even government authorities.”
History of the BIS
The Bank for International Settlements was founded in 1930 by an intergovernmental agreement between the United States, Great Britain, Switzerland, France and Germany.
Its original purpose was to facilitate the World War I reparations imposed on Germany by the Treaty of Versailles, but it turned into a meeting of central banks around the world.
Today it is commonly known as the Central Bank of Central Banks as it provides banking services to central banks around the world.