Cryptocurrencies had a great year in 2021. In this period, we have seen the market go from being classified as a billion-dollar economy into a trillion-dollar economy. Aside from that, cryptocurrencies are gaining visibility in the mainstream world with, for example, El Salvador's adoption of Bitcoin as the official digital currency. As a result, investors are looking for the "new Bitcoin" on the market, hoping to find a great alternative in so-called altcoins. Unfortunately, many traders value an altcoin exclusively…
The Bank of International Settlement (BIS) General Manager, Agustin Carsten, thinks that Central Banks should issue digital currencies. This was revealed in a report published today about digital currencies and the future of the monetary system.
Bitcoin Is Not A Suitable Alternative For Money
Agustin Carsten’s report focused on different aspects of the international monetary system and talked extensively about Bitcoin. According to Agustin, the lure of digital currencies has caused a major divide in the right architecture. Some want a payment system that relies on a trusted central authority to ensure integrity. In contrast, there is a decentralized governance system, where payments are validated using a consensus system among network participants.
Citing Bitcoin as an example of a decentralized system, Carsten believes that it has significant flaws. He believes that Bitcoin has more of a ‘’speculative asset’’ than money and lacks an intrinsic value. He also stated that the fluctuation in value undermines its usefulness as a means of exchange.
Carsten also questioned the leading currency structure, hinting that the bitcoin market is decidedly concentrated and opaque. This could be due to the few numbers of whales that own a high number of BTC. This feature, according to Carsten, leaves the digital asset open to price manipulation by these whales.
The BIS chief also warned that Bitcoin could break down altogether once it reaches its maximum supply. He believes that once the maximum supply is reached, it would lead to a massive exodus of miners.
CBDC a Potential Solution to Bitcoin
Carsten believes that Central Bank Digital Currencies (CBDC) could resolve the underlining problems with digital assets. This, according to the report, can be achieved by integrating wholesale and retail ideals. CBDCs can be used to facilitate payments between financial institutions and large commercial parties.
The retail space would be able to benefit from retail digital currencies for everyday transactions. The BIS chief also stated that central banks worldwide had shown an increasing tendency towards issuing CBDCs. He thus concludes that central banks will develop safe and secure digital assets bereft of the dangers of current digital assets.
It is not surprising that the head of the Bank of International Settlement is against cryptocurrencies. The crypto sector has disrupted the financial banking system, taking power away from governments and central banks. It will be interesting to see if more CBDCs are launched by central banks globally in the coming months.