BIS: CENTRAL BANKS CAN’T IGNORE BITCOIN TREND
Institutions need to take into account privacy issues and gains in payment systems
THE world’s central banks can’t sit back and ignore the growth in cryptocurrencies as it could pose a risk to the stability of the financial system, according to the Bank for International Settlements (BIS).
It said central banks would need to figure out whether to issue a digital currency and what its attributes should be, though the decision was most pressing in countries like Sweden where cash use was dwindling.
Institutions needed to take into account of not only privacy issues and efficiency gains in payment systems, but also economic, financial and monetary policy repercussions, said the BIS.
The analysis comes at the end of a rough week for digital currencies, with JPMorgan Chase & Co chief executive Jamie Dimon calling bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.
But with bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements. At the Bank of England, Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance.
The United States officials are exploring the matter too, though in March Federal Reserve governor Jerome Powell said there were “significant policy issues” that needed further study, including vulnerability to cyber attacks, privacy and counterfeiting.
According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue units that would be directly convertible with cash and reserves.
Meanwhile, BIS said in the report that the conundrum of stubbornly low inflation, despite a pick-up in global growth and continued monetary stimulus, was a “trillion dollar” question.
It said cheap borrowing rates and the rare simultaneous expansion of advanced and developing economies were driving financial markets higher, with signs of “exuberance” starting to re-emerge. Agencies