The Bank for International Settlements (BIS), the organization that represents most of the world’s central banks, panned bitcoin in its Annual Economic Report, saying the cryptocurrency has few redeeming qualities.
The bank offered a stiff criticism of bitcoin and cryptocurrencies in general in a chapter from the report published Wednesday ahead of its full release on June 29. Cryptocurrencies are “speculative assets rather than money” and are used in many cases to facilitate financial crime such as money laundering and ransomware attacks.
“Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint,” the report said.
The report arrived less than two weeks after the BIS’ Basel Committee indicated the risk level it assigns to crypto assets by proposing that banks with exposure to them should set aside capital to cover any losses.
Stablecoins, which are designed be less volatile than other crypto assets by being backed by fiat currencies, also came under scrutiny. The report called them an “attempt to import credibility,” and said that they are “only as good as the governance behind the promise of the backing” and that they threaten to “fragment the liquidity of the monetary system.”
CBDCs "moving from concept to design"
Cryptocurrencies and stablecoins are highlighted as part of a triple-pronged threat to mainstream financial services, alongside disruption by big tech.
The BIS set these threats against the backdrop of growing interest in central bank digital currencies (CBDCs), which have drawn the interest of most central banks around the world.
CBDCs are moving from concept to design, the report said, and could reshape the institution of money.
The bank said digital cash should be designed with the public interest in mind, ensuring an “open payment platform” beneath the shadow of a competitive level playing field.
It noted that the benefits of a CBDC depend on the competitive structure of the underlying payment system and data-governance arrangements. CBDCs built on digital identification could improve cross-border payments, limiting the risks of currency substitution, it said.
According to the BIS, CBDCs would function optimally if they are based on a two-tier system where the majority of customer-facing activity is taken on by commercial banks and other payment providers.
Three months ago, the bank released a detailed research note outlining the importance of countries collaborating to eliminate traditional banking frictions for CBDCs.
The bank also noted the most “promising design” for everyday use of CBDCs is if they were built atop an identity scheme, whereby data privacy would be safeguarded while staving off illicit activity. While not entirely new concepts, the discussion shows CBDCs, in the eyes of the bank for central banks, are on their radar.