In a win for cryptoassets, the Bank of International Settlements (BIS) – an agency which has been critical of cryptocurrencies earlier – is now warming up to the concept. Two major developments yesterday point to a change in the organization’s stance.
First, BIS chief Agustin Carstens told the Financial Times yesterday that it was planning to support the work of several central banks around the world in developing digital currencies. “And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies,” he told the FT.
In March this year, Carstens said that central banks are not “seeing the value” in issuing centrally-administered digital currencies. “There is no clear demand for CBDCs on the part of society,” he said then and added that there were “huge operational consequences” that could impact the existing financial system’s stability. He has also likened cryptocurrencies to “parasites” on the financial system in the past.
Second, the agency is also starting an innovation hub for financial technology. The hub will function as a space to explore technology trends that affect the financial services industry and will be a “focal point” for central bank experts on innovation. The initial two centers will be in Basel and Hong Kong and a third one will be set up in Singapore. The central banks of all three locations will support the initiative.
“While the private sector is driving these (fintech) innovations, their efforts will be more effective if the hard and soft infrastructure of the global financial system support this innovation, promote resilience and level the playing field on which to compete,” stated Bank of England chief Mark Carney, who is also part of the BIS’ Economic Consultative Committee.
In a March report this year, the BIS stated that cryptoassets “do not reliably provide provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value.” The agency also stated that cryptocurrencies “pose risks to banks.” More recently, the agency called for increased regulation of cryptoassets after Facebook announced its foray into the field with Libra, its blockchain and cryptocurrency. “… (The entry of big technology companies) presents new and complex trade-offs between financial stability, competition and data protection,” the agency wrote in a report.