BIS chief: Central banks question ‘value’ of issuing digital currencies

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Central banks remain skeptical about the value of issuing digital currencies and its potential impact on financial stability, according to the general manager of the Bank of International Settlements (BIS).

In a speech delivered at the Central Bank of Ireland last week, general manager Agustin Carstens said that central banks “are not seeing the value” of issuing their own central bank-backed digital currencies (CBDCs), citing concerns over uncertainties about the impact on the wider monetary system.

Carstens described the current banking system as consisting of two tiers: one facing consumers and businesses, and a second central bank tier overseeing the financial system.

Both of these systems work in tandem and are mutually supportive, but with CBDCs, the lending function moves from the commercial sector to the central banks directly—in Carstens’ words, creating a single tier system.

This, he said, risks upsetting the global financial order, and central banks are as yet unswayed by any possible advantages.

In his speech to delegates, Carstens said previous examples of one-tier financial systems had not delivered better services for customers.

He noted, “There are historical instances of one-tier systems where the central bank did everything. In the socialist economies before the fall of the Berlin Wall, the central bank was also the commercial bank. But I do not think we can hold up that system as something that will serve customers better.”

Given the uncertainties around the effects on the wider financial system, he recommended central banks continue to proceed with caution around issuing their own cryptocurrencies.

“So far, experiments have not shown that new technologies would work any better than existing ones. There is no clear demand for CBDCs on the part of society. There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system,” Carstens said.

The Bank of International Settlements has a track record of being critical of cryptocurrencies, describing the sector as “a bubble, a Ponzi scheme and an environmental disaster” in 2018. Carstens in particular has previously said cryptocurrencies fail to satisfy basic definitions of currencies, and described their role in the financial system as “parasitic.”