BIS chief says cryptocurrencies ‘don’t make for trusted money’

The head of the Bank for International Settlements (BIS), Agustín Carstens, has expressed skepticism about cryptocurrencies, questioning their ability to replace fiat currency. 

According to Carstens, cryptocurrencies ‘don’t make for trusted money’, a factor he suggests was validated by last year’s bear market, he said in an interview with Bloomberg on February 22. 

Carstens acknowledged that the growth of cryptocurrencies elevated them to be considered a replacement for fiat, but in his view, the technology behind digital currencies does not make them a reliable form of currency.

“A few years ago, crypto assets and cryptocurrencies were, in a way, put us an alternative to fiat money. I think that battle has been won; the technology doesn’t make for trusted money. The most important aspect is for these activities not to have a systemic impact,” he said. 

Push for regulations

Following the recent events in the crypto sector, he stated that there is a greater need for hastening regulations in the industry. Carstens said that the most critical aspect of regulating cryptocurrencies is ensuring their activities do not impact the financial system. 

Carstens noted that if events such as the FTX collapse happen again, it could translate into a systemic collapse. In this line, Carstens stated that he expects a ‘strong statement from the Group of 20’ countries to lead the push to strengthen regulation of the digital asset sector.

Previously, Carstens had called for the regulators to put a particular focus on stablecoins. He noted that regulations must ensure stablecoins don’t harm investors and consumers or fragment the financial system.

It is worth noting that despite BIS’s pessimistic crypto approach, the bank recently expressed its intention to allow banks to hold up to 1% of reserves in cryptocurrencies such as Bitcoin (BTC).

Furthermore, BIS issued a bulletin back in June outlining their perspective that “crypto cannot serve as a societal form of currency.” The document highlighted various challenges it identified in the crypto and blockchain industry, such as high fees and network congestion that result in market division.

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Featured image via Brooking Institution YouTube