Editorial

Derek Tonin

BIS head likes digital fiat, but still doesn’t like crypto

The Bank of International Settlements (BIS) is slowly, very slowly, coming around to see the potential in digital currencies. In a recent interview with the Financial Times, Augustin Carstens, head of the BIS, said some of the first positive statements on the topic ever from the institution.

Don’t get too excited though, he’s not yet a fan of cryptocurrencies. Instead, he’s specifically sees a future for digital versions of existing fiat currencies. “Many central banks are working on it; we are working on it, supporting them,” he told the outlet. “And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies.”

This got a few in the industry to sit up and take notice, specifically because this is a 180-degree turnaround from comments Carstens made in March. At that time, he advised that banks shouldn’t yet jump into digital currencies for fear that they might destabilize the system. “Central banks do not put a brake on innovations just for the sake of it,” he noted. “But neither should they speed ahead disregarding all traffic conditions.”

Some have taken this to be a reversal as well on his comments that cryptocurrencies are Ponzi schemes, but that reads like a conclusion that’s a bit too hasty to make. Carstens’ qualification that digital fiat currencies have a future is a very different statement to make than saying Dogecoin is going to the moon next month.

That’s proven by the BIS’ recent cautious stance on Facebook’s Libra, calling it a “potential to generate new risks and costs associated with market power.” Libra, one of the most promoted corporate-friendly attempts to digitize money, is still a threat to the current financial system that the BIS protects because it specifically promotes an alternative to the current banking system, much like cryptocurrencies.

The BIS, which is owned by 60 of the world’s central banks, is charged to protect the interests of banks specifically. Those bodies have not yet gotten on board with crypto. Digital currency, and specifically the type that emulates fiat as closely as possible, is just about the only thing they look ready to accept in a major way, so Carstens sees a future in it.

Cryptocurrency, with many of its projects defiantly promoting a vision where the world will no longer need the banks that Carestens protects, is not something he will get on board with. At least, not until those major institutions find a cryptocurrency that specifically wants to work with them, in a mature and responsible fashion that works in their interests.

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