By Shane Wright
The world’s peak central bank authority has labelled bitcoin and its ilk speculative assets used for organised crimes and a waste of energy while urging its members, including the Reserve Bank of Australia, to develop their own digital currencies.
The Bank for International Settlements (BIS) , in some of its most aggressive language about financial innovations, used a report into digital currencies to argue its concerns about cryptocurrencies such as bitcoin.
Money has flooded into a range of cryptocurrencies over recent years, aided by ultra-easy monetary policy that has made high yielding investments very attractive. A single bitcoin was worth $83,119 in April but has since tumbled below $45,000.
Official authorities have sought to make it more difficult to invest in cryptocurrencies, in part because of their use to avoid laws aimed at tracking illegal movement of cash.
The Swiss-based institution said in its report it believed the growth of bitcoin and other cryptocurrencies was a major criminal issue.
“It is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes,” it said.
“Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint.”
The bank also raised doubts about other developments, saying while stablecoins attempted to “import credibility” by being backed by real currencies they had the potential to fragment the liquidity of the entire monetary system.
The advent of “big techs” into financial services could also be a mixed blessing, according to the bank. While it acknowledged faster information flow would increase financial inclusion and deliver better services, it warned there was a real risk of market concentration among just a handful of players.
“Technological development in money and payments could bring wide benefits, but the ultimate consequences for the well-being of individuals in society depend on the market structure and governance arrangements that underpin it,” it said.
“The same technology could encourage either a virtuous circle of equal access, greater competition and innovation, or it could foment a vicious circle of entrenched market power and data concentration.”
However, the BIS is sanguine central banks can play a major role in the crypto environment by issuing digital currencies. These would sit beside existing notes and coins as currency but wholly as a digital entity.
The Reserve Bank is expected in coming weeks to release a proof of concept report into a form of central bank digital currency. It has been working with the Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software on the project to determine the implications for efficiency, risk management and innovation for such a digital currency.
The BIS said digital currencies could be the future of the financial sector and the payments system as, unlike cryptocurrencies and stablecoins, they worked for the public good.
“Central bank digital currencies represent a unique opportunity to design a technologically advanced representation of central bank money, one that offers the unique features of finality,
liquidity and integrity,” it said.
“Such currencies could form the backbone of a highly efficient new digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID.”
The report came after the Liberal head of a Senate committee examining Australia as a technology and financial centre, Andrew Bragg, used an address to the nation’s chief financial officers to argue regulators did not have the right legislative tools to deal with cryptocurrencies.
He said Australians saw cryptocurrencies much differently than regulators.
“Despite the efforts of traditional financial institutions to discredit and even debunk cryptocurrencies, Australians are viewing them as a stable and legitimate asset class,” he said.
“The consequences of this will be enormous. It is critical that we get the balance right to foster innovation. No regulation, and you leave startup founders in the void. Too much, and you smother them with punitive interventionism.”
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