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• The Bank for International Settlements (BIS) claims that stablecoins are only external support to the conventional monetary system and not a game-changer.
• The system will be account-based CBDC along with an efficient digital identity scheme for users.
• International cooperation is essential to launch a full-fledged CBDC system that supports cross-border payments.
Central Banks worldwide have become curious about central bank digital currencies. China is on the verge of launching its very own digital Renminbi, and this has triggered central banks worldwide to research and explore the prospect of their own CBDC. However, this doesn’t stop the banks from bad-mouthing cryptocurrencies. Cryptocurrencies, according to banks, have always been speculative, but they have always been keen on digital currencies. Similar is the case of the Bank for International Settlements. While bitcoin and stablecoins receive no acknowledgment from the BIS, they are open to exploring CBDC and a new chapter for the monetary system.
Crypto Assets Still Remain Highly Speculative for BIS
In its annual report, the BIS has highlighted three major developments regarding the digital currency agenda that demands top priority. First is the growing attention received by BTC and other crypto-assets; second is the stablecoin debate; and lastly, the entry of big techs into payment services and financial services more generally. Stablecoins are usually pegged to stable fiat currency. However, crypto-assets remain a highly speculative asset to them, used in illegal and criminal activities. BIS, on this, comments that they are only external support to the conventional monetary system and not to a game-changer.
BIS Designs CBDC That Divides the Entire Authority Into Two Parts
BIS stated that although bitcoin has a lucrative return that attracts most investors, its mining operations consume a lot of energy. Hyun Song Shin, the BIS’s Economic Adviser and Head of Research, is the perfect time to delve into the world of CBDCs. According to them, CBDCs are a technologically advanced representation of central bank money. CBDCs can be best divided into two tiers for better design. The central bank will only look after operating the system’s core by ensuring sound capital, liquidity, and security. While on the other hand, the private sector will be held responsible for adding innovation and better use cases.
The bank has been keen on determining the best possible design for its digital currency. The system will be account-based CBDC along with an efficient digital identity scheme for users. A digital identification system would be used to identify the users to access their accounts. This will allow them to keep their financial footprint small while maintaining neutrality. Moreover, international cooperation is essential to launch a full-fledged CBDC system that supports cross-border payments while countering foreign currency substitution.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
