Central bank digital currency (CBDC)—not cryptocurrency— is the future of the world’s monetary systems according to the Bank for International Settlements, an association of the world’s major central banks.
According to the 42-page chapter annual economic report of the institution, which BitPinas received through the Point Zero Forum event in Switzerland, although cryptocurrency provides promising technological possibilities, the structural flaws of crypto make it an incompatible basis and “cannot fulfill the high-level goals of a digital monetary system.
Yet, they noted that these systems could be built around CBDCs as these currencies are digital representations of central bank funds.
“The crypto universe lacks a nominal anchor, which it tries to import, imperfectly, through stablecoins. These structural shortcomings are unlikely to be amenable to technical fixes alone. This is because they reflect the inherent limitations of a [decentralized] system built on permissionless blockchains,” the report said.
Further, the BIS takes the ongoing bear market, as well as the collapse of stablecoin (cryptocurrencies that are meant to peg to the US dollar), as an affirmation that crypto and decentralized finance (DeFi) cannot be the foundation of monetary systems.
“The second important finding is that crypto and stablecoins fail to achieve the full network effects that we normally expect of money,” Shin said.
While the BIS acknowledges the contributions of crypto to the world’s technological advances, regarding it as a “radical departure” from existing systems, the institution still sees the technical capabilities from innovations in the crypto space to only serve as a stepping stone to strengthen the central bank monetary system.
“Programmability, composability and tokenization are not the preserve of crypto, but can instead be built on top of central bank digital currencies (CBDCs), fast payment systems and associated data architectures,” the report said.
Accordingly, the BIS emphasized that the future monetary system should be built on the trusted division of roles between the central bank and private financial entities. As implied by the report, the institution shares the vision for the future of the monetary system as the idea that public trust in central banks has not been compromised.
The Philippines, one of the pioneering countries to adopt financial technology (fintech), will soon launch its own CBDC. The Bangko Sentral ng Pilipinas (BSP) announced last March that it will pursue the pilot project of a wholesale CBDC as part of its aim to promote the stability of the country’s payment system. (Read more: BSP CBDC Digital Currency Initiative Scheduled for Q4 2022)
This article is published on BitPinas: BIS: CBDCs Will Be the Future of Monetary Systems, Are Better than Crypto
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.