From the standpoint of the Bank for International Settlements (BIS), the recent upheavals in the cryptocurrencies market reveal fundamental structural weaknesses of such digital currencies. The fall in the price of so-called “stablecoins” TerraUSD and Luna is just the most spectacular failure in the industry, the central bank of central banks announced on Tuesday in a report on the future of the monetary system.
Some digital currencies, which are less well-known, have even lost more than 90 percent in value from their 2021 highs. “Crypto commentators have begun to label recent events as the beginning of a ‘crypto winter,'” write the BIS experts. The Basel-based BIS is considered an important think tank for international monetary policy.
Stablecoins actually promise price stability
Stablecoins are cryptocurrencies designed for price stability. This should simplify its use as a means of payment or investment. Therefore, their exchange rate is often linked to classic currencies such as the US dollar or the euro. The most recent price drop of stablecoins such as TerraUSD was therefore all the more spectacular.
From the perspective of the BIS, any form of money that is not backed by a government-backed entity that can benefit from tax-funded reserves is not credible. “I think all those weaknesses that were pointed out earlier have almost become reality,” BIS boss Agustin Carstens told Reuters. “You just can’t defy gravity,” he said. At some point, the consequences would have to be borne. According to analysts, the cryptocurrency market has lost more than $2 trillion since November.
Central banks are working on their own digital currencies
The BIS has repeatedly been critical of cryptocurrencies in the past. In their most recent report, the BIS experts presented their ideas for the future global monetary system. In this view, central banks use the technical advantages of Bitcoin & Co to offer digital versions of their own currencies. Known to experts as “CBDC”, these digital currencies are at the top of the agenda of many central banks around the world. According to the BIS, about 90 percent of all central banks are now working on digital versions of their national currencies. A driving factor is the hope that this will allow them to make the leap into the online world and thereby keep cryptocurrencies in check. Among other things, the BIS wants to ensure that the CBDC also works across borders.
Technical and geopolitical challenges
The immediate challenges facing central banks are mainly technical in nature. The situation can be compared to the early 1990s, when it became clear that the new world of mobile phones required standardized coding, for example to make devices from different manufacturers compatible. But there are also geopolitical issues, such as the West’s relations with countries like China and Russia. The compatibility or interoperability of different CBDCs has long been on the agenda of the G20 countries, Carstens said. There is a good chance of moving this forward. In 2021 there have been a number of experiments with CBDC. When asked how long it could be before international standards for CBDC interoperability can be agreed, the BIS chief said: “I think in the coming years. Twelve months is probably too short.”
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
