Crypto Coders Should Stop Reinventing Money, Says BIS Chief Agustin Carstensbr>
Cryptocurrencies cannot assume the functions of money, according to Agustin Carstens, head of the Bank for International Settlements (BIS).
In a recent interview with Swiss newspaper Basler Zeitung, Carstens reiterated his belief that cryptocurrencies represent “a bubble, a Ponzi scheme and an environmental disaster.”
“The hype came about because this was something completely new and because you could ostensibly make sure-fire profits in a short space of time,” Carstens said. “But if you look at them closely, cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster – the latter because of the high energy consumption needed to run the infrastructure for these cryptocurrencies.”
Carstens, who is a former finance minister and central bank governor from Mexico, said 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.
“They are not money; they are a form of investment, an asset,” he said. “They cannot assume the functions of money for the simple reason of how they are created. Those who have the biggest incentive in the system of these so-called cryptocurrencies are those who produce the assets – the miners. By producing “money”, they wish to make a profit, and in return they deliver, as it were, the infrastructure that keeps cryptocurrencies going. This incentive, however, is not compatible with maximizing the usefulness of money.”
While acknowledging that blockchain technology may have useful applications, Carstens said that 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. “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.”
The BIS head aslo cautioned “young people” against “trying to create money.” He said they should use their many talents and skills for innovation, not reinventing money.
“Glance back into the past and you will see that creating gold or money from nothing has been a regular obsession,” he said. “It never worked. So my message to young people would be: Stop trying to create money! Central banks are trusted, and that trust is something they have built up over decades and for which there is no substitute right now. Trust is a valuable commodity. It is easily destroyed, but winning it takes time. Money has become established. It’s a fallacy to think money can be created from nothing.”
In its annual economic report published last month, the BIS claimed that cryptocurrencies are afflicted with inherent contradictions that make their widespread use as money impossible. According to the report, cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them.