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Bank for International Settlements Exec Advises Against Central Bank Digital Currencies

Bitcoin critic and general manager at the Bank for International Settlements advised against the issuance of CBDCs.

Bitcoin (BTC) critic and general manager at the Bank for International Settlements (BIS) Agustin Carstens advised against the issuance of central bank digital currencies (CBDCs) in a speech in Dublin on March 22. Bloomberg reported on the speech the same day.

Per the report, Carstens explained that a CBDC could facilitate a bank run, enabling people to move their funds from commercial banks to central bank accounts faster, thus destabilizing the system. Another issue that Carstens said arises with CBDC use, according to Bloomberg, is the different impact of interest rates on the public’s demand for money.

Carstens reportedly said that this influence could lead to bigger central bank balance sheets that require a buildup of assets, which could potentially impact the liquidity of the financial markets. Per Bloomberg, he also noted that there are enormous operational consequences for the central bank in the implementation of monetary policy and the traditional market’s stability. Lastly, he noted:

“Central banks do not put a brake on innovations just for the sake of it. But neither should they speed ahead disregarding all traffic conditions.”

As Cointelegraph reported in February, Carstens called Bitcoin a “combination of a bubble, a Ponzi scheme and an environmental disaster” and asked central banks to more closely regulate cryptocurrencies to prevent them from becoming part of the main financial system.

A report published in January by the BIS has found that seventy percent of central banks worldwide are conducting research into CBDC issuance.

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Growth of Crypto Industry Could Threaten Banks, Financial Stability: Basel Committee

The Basel Committee on Banking Supervision believes that cryptos are unsafe to rely on as a medium of exchange or store of value.

International banking authority the Basel Committee on Banking Supervision (BCBS) has issued a warning statement on crypto assets on March 13.

The BCBS is a committee of banking supervisory authorities hosted and supported by the Switzerland-based Bank for International Settlements (BIS) —  an organization made up of 60 of the world’s central banks

In today’s statement, the committee warned that the robust growth of the crypto industry could potentially “raise financial stability concerns and increase risks faced by banks.” The committee noted the risks were present despite the crypto market’s currently small scale in relation to the scope of the global financial system.

The BCBS also argued that crypto assets are “unsafe to rely on” as a medium of exchange or store of value, two of the main functions of money, implying that “cryptocurrency” is a misnomer. The authority also stated that crypto assets do not represent legal tender and “are not backed by any government or public authority.”

Pointing to a large number of risks associated with the interaction between banks and crypto-related businesses, including the risk of money laundering, terrorist financing, fraud and hacking, the BCBS provided a list of minimum requirements for a bank to operate crypto-related services.

According to the committee, any bank that decides to work with crypto-related assets should first ensure it possesses relevant technical expertise to adequately evaluate the risks associated with the field. The bank should also guarantee a clear and effective risk management framework, providing regular relevant data related to the bank’s crypto-asset risk profile.

Additionally, a bank should also publicly disclose any crypto-related services along with its usual financial disclosures, as well as be compliant with local regulations.

In January, the BIS published research claiming that departing from Bitcoin’s (BTC) proof-of-work system will not solve the major problems faced by the biggest cryptocurrency.

Previously, the BIS reported that 70 percent of global central banks are exploring the benefits of central bank digital currency (CBDC) issuance, while clear implementation plans and motivations significantly vary depending on contexts.

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Muh Monopoly! How a Banker's Talk Sparked All Kinds of Crypto Mockery

Last week, Agustin Carstens, the head of the Bank of International Settlements (BIS), widely considered the central bank of central banks – told cryptocurrency makers to “stop trying to create money.”

And the crypto community promptly had a field day with those remarks.

The BIS head has, to date, adopted a largely hostile tone toward cryptocurrencies. Back in February, he called bitcoin “a combination of a bubble, a Ponzi scheme and an environmental disaster” during a lecture.

Carstens isn’t alone in his view, to be sure. Billionaire Warren Buffett, for example, said earlier this year that bitcoin is “rat poisoned squared,” while JPMorgan Chase CEO Jamie Dimon famously declared in 2017 that bitcoin is “a fraud” (though he later said he regretted issuing those remarks).

And while Carstens has long held this position, it was his remarks last week – essentially calling for a moratorium on te creation of new cryptos – that drew the ire of many in the community on social media. He also argued that “it’s a fallacy to think money can be created from nothing” – a contention that drew more than a few derisive comments.

It was developer Jameson Lopp who perhaps best summed up that collective sentiment:

Indeed, many drew issue with the fact that an institution tied to central banks – which manage the money systems of economies and serve as lenders of that money – would call out anyone over the creation of money from nothing.

The trust issue

It’s worth noting that, at the time of the bitcoin network’s official launch in January 2009, the world’s financial sector was, to quote Satoshi Nakamoto, “on the brink of collapse.” That line – “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” – was immortalized in bitcoin’s genesis block.

As Coinbase chief technology officer Balaji Srinivasan quipped, bitcoin’s creation was steeped in the context of mistrust in banks.

Commentator Matt Odell argued that Carstens got at least one thing “almost right”: that trust is a valuable thing.

But in this case, however, it’s not central banks that are earning the trust of everyday folk.

Currency competition?

While Carstens never came out and declared that cryptocurrencies pose a competitive threat to central bank-backed monies, his organization has touched on the subject in the past.

Last month, the BIS published a report that examined them, concluding that “the decentralized technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.”

Harsh stance aside, the BIS noted that “the underlying technology may have promise in other fields” – something other central banks have highlighted before.

Whether Carstens intended to or not, his comments came across as a bit of a competitive challenge to some in the crypto space.

Indeed, Carstens’ contention was ultimately positioned as an argument for fiat currencies in favor of cryptocurrencies.

And – perhaps unsurprising – some observers saw Carstens’ commentary as a sign that they should, in fact, buy more cryptocurrency.

Ultimately, Carstens’ call to stop creating new kinds of money may have actually inspired people to do the opposite.

Carstens image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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BIS Chief to Crypto Coders: 'Stop Trying to Create Money'

The head of the Bank of International Settlements has predicted a bad ending for cryptocurrencies, calling for an end to their production in a recent interview.

In an interview with a Basel-based media outlet on June 30, Agustín Carstens took aim at cryptocurrencies and reiterated his belief that they represent “a bubble, a Ponzi scheme and an environmental disaster,” according to a transcript published by the BIS on Wednesday.

Asked whether he agrees that cryptocurrency has had a positive impact by making young people think about money, Carstens asserted that cryptocurrencies don’t have the core features to be a currency. As such, the BIS head contended that the activities associated with cryptocurrency represents an effort to create money out of nothing.

“Young people should use their many talents and skills for innovation, not reinventing money. It’s a fallacy to think money can be created from nothing,” Carstens said, adding:

“Glance back into the past and you will see that creating gold or money from nothing has been a regular obsession. It never worked. … So my message to young people would be: Stop trying to create money!”

After being appointed as the general manager in December 2017 to lead the BIS, an international institution known for its role as a kind of bank for central banks, Carstens has not shied away from making strong comments on cryptocurrency.

As previously reported by CoinDesk, the BIS chief issued sharply critical statements about cryptocurrency in February of this year.

Agustín Carstens image via Banco de México/Flickr

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Brian Kelly About BIS Report: “Its The New Guard vs The Old Guard”

After the Bank for International Settlements published its annual report in which it described cryptocurrencies as an “elusive promise,” the reactions of the experts and crypto enthusiasts were quick to follow.

Brian Kelly, Founder, and CEO of BKCM LLC, an investment firm specializing in cryptocurrency management, sharply criticized the objectivity sustaining the report.

According to Brian Kelly, the Bank for International Settlements cannot make a better statement because cryptos represent precisely the destruction of the model that this institution defends.

For Brian Kelly, the technology behind cryptocurrencies has great potential to change the current financial system. A critique such as that of BIS reproduces merely the same way of thinking as those who in the past did not believe in technological breakthroughs:

“While the markets and prices had gotten way ahead of where the technology is. In 1981, the San Francisco Examiner went online, took two and a half hours to download their newspaper. People said, this could never work, to download pictures, it takes too long. That’s where we are with Bitcoin. You gotta take a step back and put it in perspective. As this technology grows, you will get more use.”

Brian Kelly / CNBC

In his statements, Brian Kelly also mentioned that Bitcoin is like the “Napster of Money.” Napster was the first massive scale project that allowed p2p music sharing for free.

This situation led to a lawsuit that resulted in the closure of the popular platform. However, other similar models emerged without being controlled by the authorities. Networks like Ares, Kazaa, Emule, and Torrent revolutionized the way information is shared.

Brian Kelly Caused a Very Interesting Twitter Discussion

Brian Kelly’s comments generated interesting reactions from the community. One of the most notable of all led Mr. Craig Wright to state his opinion regarding the possibility of a collapse of Bitcoin.

Twitter User “The Bitcoin Hat Guy” mentioned the following regarding the comparison with Napster:

To which Dr. Craig Stephen Wright, known for his claims to be Satoshi Nakamoto, said:

Another user under the name DepNox mentioned that the position of the BIS was entirely predictable:

Playing The Devil’s Advocate

Overall, to non crypto adopters, the crypto community sees them as a way to destroy the financial system.

While it may be true that the Bank for International Settlements seems biased whent it comes to the report’s statements, it is also important to stress that they do not deny the possibility of a change in the financial system. What they highlight is that, –at least in the short or medium term– the likelihood is very remote due to the lack of maturity of some technologies.

The BIS believes that for many users it is more convenient and practical to use FIAT rather than cryptos for many reasons ranging from stability to security.

Since the time of the report’s issuance, the cryptomarket has seen a small increase in the global market cap. Bitcoin has a current price of around 6600 USD.


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Bank for International Settlements Explains Why Cryptos Are Not Globally Adopted

The Bank for International Settlements published yesterday a report entitled “Cryptocurrencies: looking beyond the hype.” In it, they provide an overview of the cryptocurrencies world enumerating the pros and cons of their adoption.

As shown in the title, the analysis seeks to go beyond the excitement that many might expect; however, it also highlights some advantages of cryptocurrency over traditional FIAT money.

Bank For International Settlements LogoBank For International Settlements Logo

The Bank for International Settlements is an institution that provides financial services to Central Banks. Currently, 60 Central Banks are members of this institution, attesting to the prestige and importance of the BIS in the world’s financial and macroeconomic sphere.

The Report shows an overview that serves as an answer to the question of why cryptocurrencies the world does not use cryptos as a mainstream means of payments.

According to the Bank for International Settlements, even though cryptocurrencies have a lot of potentials, they do not yet have the maturity level required to disrupt the international monetary system:

Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value. Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.
That said, the underlying technology could have promise in other applications, such as the simplification of administrative processes in the settlement of financial transactions. Still, this remains to be tested.

According to the study, the use of FIAT money is still a much more convenient system for ordinary users and still represents the’final boss’ cryptocurrencies need to beat

Thanks to the active involvement of central banks, today’s diverse payment systems have achieved safety, cost-effectiveness, scalability and trust that a payment, once made, is final.

They mentioned three key factors why cryptocurrencies have not yet become mainstream, and why they represent a less viable use option than FIAT money:

“First, cryptocurrencies simply do not scale like sovereign moneys. … The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte …
The second key issue with cryptocurrencies is their unstable value. This arises from the absence of a central issuer with a mandate to guarantee the currency’s stability …
The third issue concerns the fragile foundation of the trust in cryptocurrencies.”

The Bank for International Settlements Explained the BTC/BCH  Debate?

Another aspect that worries the institution is the excessive control users give to the miners over the fate and stability of a blockchain:

The lack of payment finality is exacerbated by the fact that cryptocurrencies can be manipulated by miners controlling substantial computing power, a real possibility given the concentration of mining for many cryptocurrencies.

This point is precisely the main reason for the break-up between the Bitcoin and Bch communities. A more substantial and heavier block would give a high level of control to the most powerful pools, allowing them to have certain privileges over a given network.

In the same vein, it seems BIS believes forks are also an anomaly and a sign of the fragility of blockchain:

An even more worrying aspect underlying such episodes is that forking may only be symptomatic of a fundamental shortcoming: the fragility of the decentralised consensus involved in updating the ledger and, with it, of the underlying trust in the cryptocurrency

Should Central Baks Issue Digital Currencies?

On the initiative of some Central Banks to study the use of Blockchain technologies, the Bank for International Settlements mentioned that although there are currently many intentions, if implemented, the most likely is that the CBDC (Central Bank Digital Currencies) do not have the same characteristics as the traditional cryptocurrencies:

At the moment, central banks are closely monitoring the technologies while taking a cautious approach to implementation. Some are evaluating the pros and cons of issuing narrowly targeted CBDCs, restricted to wholesale transactions among financial institutions. These would not challenge the current two-tier system, but would instead be intended to enhance the operational efficiency of existing arrangements. So far, however, experiments with such wholesale CBDCs have not produced a strong case for immediate issuance.

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Swiss Bank Lambastes Crypto; Slow, Costly, and will Break the Internet

In a recent report the Bank for International Settlements (BIS) condemned cryptocurrencies with some scathing comments about the collapse of the internet among other things.

It is not unusual for a bank to be critical of crypto. It is not surprising either since decentralized money competes with and goes against a bank’s business model which is to make money from its customer’s money. They will often fuel FUD harping on about terrorism funding and criminal activity but breaking the internet really is going a bit far.

In its Annual Economic Report, the Swiss-based central banker’s bank argued that the decentralized technology underpinning cryptocurrencies is no substitute for trusted fiat money. The report stated that the bank was prompted to look ‘beyond the hype’ following ‘intense interest’ in Bitcoin and virtual currencies. Predictably the authors were overtly critical;

“looking beyond the hype, it is hard to identify a specific economic problem which they currently solve. Transactions are slow and costly, prone to congestion, and cannot scale with demand. The decentralised consensus behind the technology is also fragile and consumes vast amounts of energy.”

For a bank to say crypto transactions are slow and costly is absurd, anyone that has tried a cross-border transaction between two different banks in two different countries will know the meaning of ‘slow and costly’.

The report went on to attempt a calculation on what it would take the current Bitcoin blockchain to process the current level of retail transactions taking place at the moment;

“To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months. The associated communication volumes could bring the Internet to a halt.”

What it doesn’t consider is that the industry is embryonic and gradual adoption will lead to evolution in the technology. There are already several blockchains and digital currencies that are far more efficient than Bitcoin and more will follow. Would networks in 1994 been able to handle the current level of information flowing around the internet? No, they have evolved along with the technology and adoption.

In addition to breaking the internet the report went on to call the energy consumption in mining operations an ‘environmental disaster’. Did it compare this to the energy used to power the tower blocks that banks own or fuel for the planes that their executives fly around the planet in? No.

Banks are threatened by crypto in the same way that corrupt governments are threatened by free speech and flow of information. Taking the profits and power back from the banks by fostering crypto adoption will bring about a financial revolution that this world profoundly needs – it just may take a few years, and the bankers will not like it.


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Halt the Internet? BIS Report Critiques Blockchain and DLT Claims

A financial institution operated by the world’s central banks is taking aim at cryptocurrencies, questioning their ability to deliver on their promise in a new report published Sunday morning.

The document, titled “Cryptocurrencies: looking beyond the hype” and released by the Bank of International Settlements (BIS), explains the history behind the technology and analyzes whether it can truly creating a trustless form of money. As previously reported, the release precedes the organization’s full annual economic report, which will be published next week.

Citing hard forks, mining concentration, the proliferation of new cryptocurrencies, volatile markets and scalability as issues with cryptocurrencies at present, the bank’s report concludes that ” the decentralized technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.”

In addition, the bank claims that using a blockchain to process the volume of retail payments made daily “could bring the internet to a halt.”

The report explains:

“To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months.”

Beyond storage capacity, the report claims that “only supercomputers” possess the processing power needed to conduct every retail transaction on a blockchain, and even if there were sufficient supercomputers to create a decentralized network, “millions of users [would] exchange files on the order of a magnitude of a terabyte.”

This massive communication volume is what would impact the internet, according to the report.

The report also takes shots at miners, noting that “delivering … hinges on a set of assumptions: that honest miners control the vast network of computing power, that users verify the history of all transactions and that the supply of the currency is predetermined by a protocol.”

While the BIS was harsh on cryptocurrencies, it saw distributed ledgers more positively, writing that “the underlying technology may have promise in other fields.”

Distributed ledger technology can facilitate cross-border payments, as well as help niche fields “where the benefits of decentralized access exceed the higher operating cost of maintaining multiple copies of the ledger.”

However, the report ultimately noted that research in other technologies to accomplish the same goals as a distributed ledger is ongoing, “and it is not clear which will emerge as the most efficient one.”

Match on fire image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.