Should banks design their own cryptocurrencies? According to Agustin Carstens, general manager of the Bank for International Settlements, the answer is a definitive “no.”
Carstens has never been a fan of crypto, having likening bitcoin to a “bubble,” a “Ponzi scheme” and an “environmental disaster” in the past. At a speech in Dublin, Carstens explained his fear of cryptocurrencies further, saying that they undermine the global banking system.
He is now warning banks of the dangers of creating their own digital currencies. Virtual coins, he claims, go against everything banks stand for. They decrease financial stability and could prevent banks from implementing policies designed to enhance customer safety.
In the speech, he comments:
There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system. Central banks do not put a brake on innovations just for the sake of it, but neither should they speed ahead disregarding all traffic conditions.
In other words, banks and financial institutions should work hard to keep up with present trends in the monetary space, but not to the point that it somehow hurts functionality.
Carstens uses the example of a “financial panic” in his speech, saying that the issuance of a central bank-issued digital currency – known as a CBDC – would cause people to move all their money into accounts situated within commercial banks. This could potentially affect interest rates negatively and birth larger balance sheets for central banks, which could harm market liquidity.
The banking manager appears somewhat alone in his stance. Several banks have either already created national digital currencies or have announced plans to do so. The Bank of England made headlines nearly three years ago when it revealed a new virtual currency similar with bitcoin. Developed by researchers at the University College of London, the coin – known as RSCoin – operated via blockchain technology, but was still a centralized unit of currency, coming directly from the bank itself.
Recently, IBM announced a joint venture with Stellar known as Blockchain World Wire (BWW). The project has garnered the attention of six major global banks including Banco Bradesco in Brazil, Bank Busan in South Korea, and Rizal Commercial Banking Corporation in the Philippines. BWW will enable these institutions and others who join to develop and issue their own stablecoins in the future.