BIS Head Urges for Cryptocurrency Intervention to Protect “Real Value” of Money
While bitcoin continues on its sometimes wild swings in pricing, more leaders from around the world are looking to restore some sense of order to the seemingly rogue currency. For new head of Switzerland-based Bank for International Settlements (BIS) General Manager Agustin Carstens, there's a "strong case" for taking on the new digital frontier to safeguard the “real value” of money.
"Bitcoin is not functional as a means of payment, but it relies on the oxygen provided by the connection to standard means of payments and trading apps that link users to conventional bank accounts," Carstens said in Frankfurt on Tuesday.
"If the only ‘business case’ is use for illicit or illegal transactions, central banks cannot allow such tokens to rely on much of the same institutional infrastructure that serves the overall financial system and freeload on the trust that it provides."
And Carstens isn't the only leader warning people to have a cautious eye toward digital currencies. Mario Draghi, European Central Bank's president, said the organization is going so far as to create a study within the group's supervision arm that analyzes the effects of cryptocurrencies on banks.
"Right now digital currencies are not subject to a specific supervisory approach," the ECB president said responding to lawmakers’ questions at the European Parliament earlier this week. "Work is underway in the SSM to identify potential prudential risks that these digital assets could pose to supervised institutions."
Draghi called the cryptocurrencies "very risky assets" in an "unregulated space." While bitcoin rebounded back up to nearly $8,015 (at the time of writing), it hasn't maintained the steady increases seen over the last year.
"We are not observing a systemically relevant holding of digital currencies by supervised institutions -- by banks in other words. Actually, the credit institutions established in the European Union are showing limited appetite for digital currencies, like Bitcoin, notwithstanding the high level of public interest," Draghi said.
It's something that more international leaders have discussed on a broad forum. Last month's World Economic Forum in Davos included ECB Executive Benoit Coeure urging 20 nations that gathered to regulate Bitcoin more aggressively. U.K. Prime Minister Theresa May also made public statements that the British government would also be looking into the security of bitcoin and other cryptocurrencies on the banking system.
Carstens warned against passing bitcoin off as a niche financial fad.
"If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat," he said. "Most importantly, the meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust. Private digital tokens masquerading as currencies must not subvert this trust."