Central Banks Should Not Issue Digital Currencies – BIS Chief Agustin Carstens

News | March 25, 2019 By:

Agustin Carstens, head of the Bank for International Settlements (BIS), said that central bank digital currencies (CBDC) could undermine both financial stability and monetary policy-making.

In a speech in Dublin last week, Carstens talked about the risks of central banks issuing their own digital currencies to the general public. Carstens, who previously linked bitcoin to “a bubble, a Ponzi scheme and an environmental disaster,” said that a CBDC could facilitate a bank run, enabling people shift money to accounts at the monetary authority from commercial banks, thus undermining the system.

“Other downsides of CBDCs include potential changes to how interest rates affect the public’s demand for money and lead to bigger central bank balance sheets, which would necessitate a buildup of assets possibly impacting financial market liquidity,” Carstens said.

Carstens further said that there are enormous operational consequences for the central bank in the implementation of monetary policy and the traditional market’s stability.

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

Last year, the BIS chief claimed that cryptocurrencies are assets, not currencies, as they do not fulfill the three purposes of money: to be a good unit of account, to be stable and to be suitable as a store of value. At the time, he said that while blockchain technology may have useful applications, producing money is not one of them.

“Central banks and governments should raise the level of protection for investors and consumers because in the meantime a lot of people have become affected by cryptocurrencies,” he said at the time. “In addition, central banks must assume responsibility for strengthening national anti-money laundering legislation and for measures against the financing of international terrorism. While central banks are not law enforcement authorities as such, they can still show how these pseudocurrencies serve as vehicles for illegal activities.”