Ahead of the meeting of G20 finance ministers and central bank governors, the Bank for International Settlements (BIS) presented two reports — on the cryptocurrency ecosystem and central bank digital currencies (CBDC). The reports contain quite different conclusions about the related technologies.
The Bank for International Settlements Innovation Hub (BISIH) submitted two reports for consideration by G20 members, who will meet later this month. In the first report, the BIS analysts criticized cryptocurrencies, highlighting all the possible risks associated with digital assets. The second report called CBDCs the basis for the development of a new payment ecosystem.
In the report on the cryptocurrency ecosystem, the BISIH analysts detailed the structural challenges and risks associated with the use of digital assets, including:
- centralization of trading;
- the instability of stablecoins;
- the irreversibility of smart contracts;
- fragmentation of financial markets.
However, the biggest problem of cryptocurrencies, according to the paper’s authors, is the increasing dependence of the real economy on the crypto ecosystem. The BISIH analysts state that the growing interest of institutional investors in crypto and the active development of the tokenized asset market lead to a “cash squeeze.” But it’s impossible to replace cash with cryptocurrencies due to the structural flaws of unregulated digital assets.
In the second report, the BISIH representatives positively assessed the role of central bank digital currencies in the future monetary system, calling them the basis for further innovations. So, the report found that central bank currency has unique advantages. Well-designed CBDCs will become a secure and neutral asset for settlement, creating a common foundation for interoperability and the development of a new payment ecosystem. CBDCs can provide the foundation for an open and integrated financial architecture while continuing to drive competition and innovation.
The BISIH representatives also urged G20 member officials to not only continue research into CBDC development, but to accelerate it. The reason is that the widespread adoption of digital state currencies may take several years, while stablecoins and cryptocurrencies already exist and are actively gaining market share.
According to the latest BIS research, 93% of central banks are studying the possibility of issuing CBDCs, conducting active experiments within the framework of pilot projects. The BIS specialists, in turn, developed a special program that will allow central banks to protect CBDCs from various cyber threats.
