LONDON, Feb 6 (Reuters) – Cryptocurrency markets have not been wiped out by last year's turmoil, but a new wave of central bank digital currencies will face geopolitical limits, the Bank for International Settlements' New Innovations says. The person in charge predicted.
BIS, known as the world's central bank, has long been critical of cryptocurrencies, likening it to both a Ponzi scheme and past market bubbles.
Last year's collapse of Sam Bankman-Fried's FTX empire, Celsius, Three Arrows Capital, and a slew of “stablecoins” wiped out more than $2 trillion in value in the sector, and much of that warning. I got it right.
However, since the beginning of 2023, some kind of recovery has been seen, with the Bitcoin price recovering by 40%.
“I think the industry will learn from these mistakes and come up with new things,” Cecilia Skinsley, the new head of the BIS Innovation Hub, told Reuters in her first in-depth interview since taking over.
The former Swedish central bank governor also said the issue does not appear to have affected the central bank's plans to potentially widely introduce state-issued digital currencies (CBDCs) in the coming years.
As the global central banking umbrella organization, BIS has coordinated much of the international experimentation around CBDCs. CBDCs can be built for public use or just for use by banks behind the scenes in “wholesale” money markets.
“Everything I hear is that the people who have these projects are pushing for them,” Skinsley said.
This year is set to see several important milestones, with 11 countries already launching CBDCs and over 100 more countries representing over 95% of global GDP currently considering CBDCs.
China, for example, plans to expand its digital yuan pilot to a large portion of its 1.4 billion population. The European Central Bank needs to get the green light for a full-scale inspection. The US Federal Reserve is also conducting some tests, and Australia, the UK, Brazil, India, South Korea and Russia have also taken significant steps.
The global move comes as the use of physical cash is declining globally and authorities seek to fend off the threat posed by Bitcoin and “Big Tech” companies to their money printing power.
Sanctions imposed on countries such as Russia and Venezuela in recent years are also a factor, even with long-time allies of the United States such as Europe wanting to ensure they have an alternative to the Visa, Mastercard and Swift networks. .
“We need good resilience when it comes to defense and food supplies, but it's also going to be important when it comes to payment systems,” Skinsley said.
“I understand the rationale for any country to ask: How resilient is our country? Which countries can be our friends and allies?”
geopolitical reality
CBDCs should make currencies more high-tech, making it easier and cheaper to send money to other countries, but new forms of electronic money will form “tectonic plates” that will only be fully interoperable between geopolitically aligned countries. Skinsley said it is likely that the
“It will never be possible to achieve full interconnectivity,” Skinsley said, adding that BIS' efforts are aimed at making CBDCs as versatile as possible.
“There will be too much friction, and not every country in the world is ready to fully cooperate with every country in the world. That's the reality.”
“There are some issues here,” Skinsley said. “Estimates of cash usage in many countries suggest that cash will no longer be used as a payment method in the future.”
“This raises the question of how to maintain a public policy goal that we believe is important: confidence in the monetary system.”
sign up here.
Reporting: Mark Jones, Editing: William MacLean
Our standards: Thomson Reuters Trust Principles.
