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BIS Report: CBDCs Unlikely to Replace Cryptocurrencies

BIS Report: CBDCs Unlikely to Replace Cryptocurrencies

Last updated 23rd Sep 2022
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The Bank of Settlements (BIS) — a global body for policymakers — alleges central banks are competing with Stablecoins private-sector operators in controlling digital currencies and offering consumer protection.

In a recent report, BIS said potential CBDCs (or Central Banks Digital currencies) can synchronize with private digital currencies.

BIS further added that CBDCs — with the help of financial institutions and traditional banks — can safeguard financial stability and provide credit as intermediates.

Judging from the contents of the report, policymakers are anxious about cryptocurrencies‘ rapid growth, and the booming private sector payment initiatives that could render central banks “useless” regarding controlling money.

CBDCs as instruments for delivering public policy objectives

This is the second BIS report on CBDCs, which is part of an effort from regulators in suppressing the risks digital currencies pose in the financial markets.

The report seeks to update the findings of the foundational principles of CBDCs in a meeting organized last year by a group of seven central banks including those from the US, EU, UK, and Japan. The same group contributed to the latest BIS report findings.

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Though government-backed digital currencies are still evolving, a majority of the central banks contributing in the latest report regard CBDCs as important instruments for delivering public policy objectives.

Regulators to provide standards for private Stablecoins

CBDCs are a form of Stablecoins, which derive value from the dollar. Crypto traders and investors can easily hop in and out of Stablecoins such as Ethereum and Bitcoin. And they’re regarded as the best alternative to hard cash (as a means of payment).

Tether and its peers (especially USD coin) are the most rapidly growing Stablecoins with an estimated valuation of about $130 billion.

In the global context, the figure is just a fraction of the financial system.

However, Fitch — a rating agency — warned stablecoin operators will pose a huge risk to the credit markets, especially if forced to quash their (currency) reserves. Fortunately, regulators plan to impose minimum standards on them in a few weeks.

The BIS reports hint if central banks massively adopt Stablecoins, markets will likely fragment and explode with “excessive power”.

Christine Lagarde, chair of the group of central bank governors behind the latest BIS report, said central banks should make sure citizens can freely access the safest form of central bank-backed digital money.

The US and European policymakers are currently exploring the possibilities of launching a digital currency. Bahamas, Sweden, and China have already advanced in the sector.

Walter Akolo

Walter Akolo

Walter is a writer from Nairobi, Kenya. He covers the latest news on the cryptocurrency market and blockchain industry. Walter has a decade of experience as a writer.