Cryptocurrencies are speculative assets that in many instances enable criminal activity and “work against the public good”, the Bank for International Settlements (BIS), the global body for central banks, said.
“It is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes,” the BIS said in a report published on its website.
Bitcoin, the world’s largest cryptocurrency in particular has “few redeeming public interest attributes when also considering its wasteful energy footprint,” it said.
Central banks around the world have been reluctant to endorse cryptocurrencies because of their speculative nature, lack of value and regulatory oversight. The Central Bank of the UAE also does not recognise cryptocurrencies as a legal tender.
Stablecoins can “fragment the liquidity of the monetary system and detract from the role of money as a coordination device … ultimately [they are] only an appendage to the conventional monetary system and not a game changer”, the BIS said.
Central banks are responsible for financial and monetary stability, the BIS said. Unlike Bitcoin and other digital tokens that lack any supervision, central banks are “accountable … [and] play a pivotal role in payment systems”.
“In their roles as operators, overseers and catalysts, [central banks] pursue key public interest objectives in the payments sphere: safety, integrity, efficiency and access”, the BIS added.
As regulators, central banks have multiple roles: to provide the unit of account in the monetary system, provide the means for ensuring the finality of wholesale payments by using their own balance sheets as the ultimate means of settlement, ensure that the payment system works smoothly and oversee the payment system’s integrity, while upholding a competitive level playing field.
“At times of stress, the central bank’s role in liquidity provision takes on a more urgent form as the lender of last resort,” it said.
The BIS said central bank digital currencies (CBDCs) should be viewed in the context of the functions of a regulator in the monetary system.
“Wholesale CBDCs are for use by regulated financial institutions. They build on the current two-tier structure, which places the central bank at the foundation of the payment system while assigning customer-facing activities to PSPs (payment system providers),” it said.
CBDCs are a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank. CBDCs can be designed for use either among financial intermediaries or by the wider economy.
Central bank digital currencies can contribute to an open, safe and competitive monetary system that supports innovation and serves the public interest, the BIS said.
“CBDCs could form the backbone of a highly efficient new digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID,” the BIS said. “To realise the full potential of CBDCs for more efficient cross-border payments, international collaboration will be paramount.”