BIS Says Traditional FIs Must Embrace Digitization

To make sure that they stay at the center of the global payment system, the head of the Bank of International Settlements (BIS) says that central banks have to embrace the revolution in digital money, Bloomberg reported Thursday (Dec. 5).

BIS General Manager Agustin Carstens said in a speech, according to the outlet, “We have a responsibility to be at the cutting edge of the debate.” Carstens continued, “There is really no choice but to do so, as otherwise, events will overtake us.”

Even though the private sector “excels at customer-facing activity,” as Carstens’s argument goes, central banks ensure liquidity, provide the basis for trust, and make standards. Carstens is not enthusiastic about bitcoin and is concerned that large tech firms offering payment services means they could unfairly dominate due to the information resources that they already have.

Carstens started his BIS term advocating for authorities to rein in cryptocurrencies. However, he has overseen a hub’s implementation to facilitate FinTech collaboration. His caution, according to the outlet, is “clear.” He warns that individuals shouldn’t be distracted by flashy new developments at the cost of financial system stability. 

He gave the green light to wholesale central bank digital currencies (CBDCs) since they would be limited to institutions that have access to central bank deposits currently. But he reportedly nothing that it would be perilous to issue them to the public as a whole. 

In separate news, Carstens said that banks should not issue their own bitcoin-like tokens because it could undermine global financial stability as well as monetary policy. He has called Bitcoin “a bubble, a Ponzi scheme and an environmental disaster” in the past. 

He said if banks issued similar currency, it could lead to individuals moving money away from commercial banks. Such a move could potentially undermine the whole system, he said.

He had also pointed out there are other downsides to CBDC. It could possibly change how interest rates affect demand for money, and it could make for bigger central bank balance sheets.