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Central banks must play ‘pivotal role’ in digital money, says BIS exec

With central bank digital currencies (CBDCs), on the agenda in many countries, the general manager of the Bank for International Settlements has weighed in on the role of the mainstream financial establishment in the emerging digital currency landscape.

Speaking at the Hoover Institution policy seminar on Jan. 27, Agustín Carstens argued for central banks to be front and center in issuing and controlling digital money:

“If digital money is to exist, the central bank must play a pivotal role, guaranteeing the stability of value, ensuring the elasticity of the aggregate supply of such money, and overseeing the overall security of the system. Such a system must not fail and cannot tolerate any serious mistakes.”

According to Cointelegraph, for Carstens, central banks and the existing financial architecture is better suited to ensuring trust and stability for digital currencies than a purely decentralized governance network. The BIS general manager doubled down on this line of argument, calling Bitcoin (BTC) a speculative asset and not money.

“Investors must be cognizant that Bitcoin may well break down altoget62168her. Scarcity and cryptography alone do not suffice to guarantee exchange,” Carstens said in reference to Bitcoin’s value proposition as money. 

The BIS chief also described private stablecoin projects such as Facebook’s Diem as being more credible than Bitcoin. Despite this assertion, Carstens argued against private stablecoins:

“Overall, private stablecoins cannot serve as the basis for a sound monetary system. There may yet be meaningful specific use cases for stablecoins. But to remain credible, they need to be heavily regulated and supervised. They need to build on the foundations and trust provided by existing central banks, and thus to be part of the existing financial system.” 

On the subject of CBDCs, the BIS general manager downplayed alleges that sovereign digital currencies like China’s e-yuan could notably challenge U.S. dollar hegemony. On the domestic front, Carstens announced that national CBDCs be put to a variety of uses such as monetary policy transmission and interest rate management.

Carstens also expressed the belief that CBDCs should run complementary to the existing cash system. According to Carstens, completely replacing all bank accounts and cash with digital currencies is both undesirable and unrealistic.

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