The Bank for International Settlements (BIS), the global body of central banks, claims that the disadvantages of cryptocurrencies that were previously cited have “largely materialized.” BIS General Manager Agustin Carstens opined, “You just can’t defy gravity… At some point, you really have to face the music.”
BIS on the weaknesses of cryptography
The Bank for International Settlements (BIS) has warned that the danger of decentralized digital money is materializing.
The BIS explained in its annual economic report published on Tuesday that the sell-off in the crypto market and the collapse of the terra (LUNA) cryptocurrency and the terrausd (UST) algorithmic stablecoin are indicators of a structural problem in the cryptocurrency.
“Structural flaws make the cryptoverse unsuitable as a basis for a monetary system: it lacks a stable nominal anchor, and its scalability limits lead to fragmentation. Contrary to the decentralization narrative, cryptocurrencies often rely on unregulated intermediaries that create financial risks,” the BIS report says.
Agustin Carstens, general manager of BIS, told Reuters on Tuesday that any form of money is ultimately untrustworthy without a state-backed body that can draw on tax-funded reserves. He opined:
I think that all these shortcomings that were pointed out earlier have largely materialized.
The BIS executive continued, “You just can’t defy gravity… At some point, you really have to face the music.”
Carstens does not believe that the collapse of the crypto market will cause a systemic crisis, just as bad loans provoked a global financial collapse. He detailed:
From what we know, it should be quite manageable. But there are many things we don’t know.
The BIS chief continued talking about central bank digital currencies (CBDCs). In a report published in May, the BIS said that nine out of 10 central banks in the world are exploring their own digital currencies.
“It’s a topic that’s been on the G20 agenda for quite some time,” Carstens told the news outlet, adding “there’s a good chance it’s moving forward.” He pointed out that some countries have already conducted “real” trials of their central bank digital currency.
Carstens believes that “in the next couple of years” there will be international standards for CBDC, noting that 12 months is probably “too short”.
This week BIS Innovation Center announced that his Eurosystem Center projects will explore the cryptocurrency markets. Citing that “the collapse of many stablecoins and decentralized finance (defi) lending platforms has highlighted the difficulty in assessing their risks and economic potential,” BIS described: “The goal of the project is to create an open source market analytics platform to shed light on the market capitalization, economic activity and risks to financial stability”.
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