The foundation of future innovative monetary systems will be CBDC, not cryptocurrencies with their systemic shortcomings. This conclusion was reached by analysts at the Bank for International Settlements (BIS) in the Annual Economic Report.
Retail #CBDCs can be designed with inclusive features to serve users that currently do not have access to digital payments #BISAnnualEconReport https://t.co/Qvmq4W2N9h pic.twitter.com/TbrozsIFP4
— Bank for International Settlements (@BIS_org) June 26, 2022
In their view, recent events revealed a huge gap between the vision of cryptocurrencies and reality. BIS experts noted that the collapse of the TerraUSD stablecoin and the associated LUNA token ‘underscored the fragility of a system that is sustained by selling coins for speculation’.
“It is now clear that cryptocurrencies and DeFi have deeper structural limitations that do not allow them to reach the levels of efficiency, stability and integrity necessary for an adequate monetary system. In particular, the crypto ecosystem lacks a nominal anchor, which it unsuccessfully attempts to import through stablecoins,” the report says.
BIS experts also pointed to the crypto industry’s tendency toward fragmentation and reliance on centralized intermediaries. Blockchain applications cannot scale without compromising security, as evidenced by their ‘overload and excessive fees,’ the experts say.
In their view, a central-bank-based monetary system has served society well.
“Nevertheless, digital innovations are expanding the boundaries of technological possibilities, imposing new requirements,” they said.
The BIS experts say the task is to harness the useful features of cryptocurrencies, such as programmability, composability and tokenization on a more robust foundation.
“The monetary system of the future must combine new technological possibilities with a superior representation of central bank money at its core,” they said.
The future payment system should be based on a proven and reliable division of roles between the central bank, which provides the foundation, and private institutions that carry out client-facing activities.
Central banks will operate wholesale CBDCs based on distributed ledger technology. At the retail or ‘client’ level, digital currencies will allow intermediaries to improve interoperability across platforms, reduce costs and expand access to financial services, BIS experts say.
They recalled that such CBDC interactions have been tested in a number of experiments under the institution’s aegis. The BIS Innovation Hub carried out projects Inthanon-LionRock, Dunbar and Jura with the participation of several central banks.
Nine out of ten central banks worldwide изучают CBDC, BIS experts say.
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