Central banks have intensified their criticism of cryptocurrencies as battle over the monetary system escalates, arguing that digital tokens such as bitcoin have few redeeming features and “work against the public good”.
In a report published on Wednesday, the Bank for International Settlements, the global body for central banks, also dismissed stablecoins — a link between crypto and conventional assets — as an “appendage” to traditional money.
The strongly worded report was the clearest signal yet from central banks that they are ready to fight any effort to undermine their key role in the global financial system.
Cryptocurrency prices are under pressure because of investors’ growing fear that they face increased regulation.
Earlier this month the Basel Committee, the world’s most powerful banking standards-setter, called for tougher capital rules for holding digital assets.
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In its report, the BIS said: “Central banks stand at the centre of a rapid transformation of the financial sector and the payment system. Innovations such as cryptocurrencies, stablecoins and the walled garden ecosystems of big techs all tend to work against the public good element that underpins the payment system.”
The BIS did, however, endorse the development of digital currencies backed by central banks, saying they could be a tool to achieve greater financial inclusion and lower the high costs of payments.
“Central bank digital currencies . . . offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy [and should be] designed with the public interest in mind,” it said.
Days ago Fabio Panetta, the European Central Bank policymaker in charge of developing its own digital euro, told the Financial Times that one of the project’s key aims was to combat the spread of digital coins created by other nations and companies.
Authorities in several major economies including China have recently stepped up efforts to curb the growing popularity of bitcoin and its peers because of concerns that policymakers are losing control of a growing chunk of the financial system.
The price of bitcoin fell to below $30,000 on Tuesday for the first time since January but later rebounded. In April it peaked at $63,573.
“It is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes,” the BIS said. “Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint.”
The global financial authority also took aim at stablecoins, which are cryptocurrencies pegged to other assets. The BIS said they “attempt to import credibility by being backed by real currencies”, but other than fragmenting financial systems and introducing new difficulties they are “ultimately only an appendage to the conventional monetary system and not a game-changer”.
The BIS also criticised technology companies that choose to become involved in the payments sector, cautioning that some might become overly dominant because of the vast amounts of data they hold. This could result in excessively high costs to transfer money, it warned.
Expensive payments are “one of the most stubborn shortcomings” of the current system, the report added.
“The concern is that when big tech firms enter the payments market, their access to user data from associated digital business lines may allow them to achieve a dominant position, leading to fees that are even higher than those charged by credit and debit card companies currently,” the BIS said.
Central banks step up fight against cryptocurrencies – Financial Times