Crypto’s “inherent structural flaws” make it unsuitable as a monetary tool, the Bank for International Settlements said in a report sent to finance ministers of the world’s twenty largest economies.
The report from BIS, a grouping of the world’s major central banks, cited issues of instability, inefficiency and accountability that outweigh potential innovative benefits such as automated payments.
Despite the millions of retail and institutional investors getting involved in the growing sector, “crypto has so far failed to harness innovation to the benefit of society,” said the report, prepared for a meeting of G20 finance ministers and central bank governors due to take place in Gandhinagar, India this weekend.
“Crypto remains largely self-referential and does not finance real economic activity,” it added. “Inherent structural flaws make it unsuitable to play a significant role in the monetary system.”
The report comes after a turbulent year for crypto. The report cites the losses from the collapses of FTX and of the Terra ecosystem, the risk of hacks and rug pulls and the problems of scaling to become the size a full-on payment system will need – since, it said, permissionless blockchains that grow too large get congested.
Central bankers’ skepticism about crypto is nothing new, given fears that new payment systems could disrupt or displace the traditional fiat currencies they issue.
Members of the G20 appear to be cautious about encouraging stablecoins, cryptocurrencies tied to the value of fiat currencies, since the effect on centralized monetary policy can be even more pronounced in emerging markets.
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