BIS General Manager Agustín Carstens: cryptocurrencies a potential threat to financial stability
Agustín Carstens, General Manager of the Bank for International Settlements (BIS), has called on central banks to pay special attention to the ties linking cryptocurrencies to real currencies. “
If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability,” he said in a lecture delivered in Frankfurt am Main.
Do not subvert trust in central banks
Trust, Mr Carstens argued, is the fundamental tenet that underpins credible currencies, and central banks play an important role as stewards of public trust. And it is precisely this requirement of trust which cryptocurrencies are lacking, he explained, noting that cryptocurrencies are not the liability of any individual or institution. To use Bitcoin and their ilk often means resorting to an intermediary such as the Bitcoin exchanges. “
[Cryptocurrencies] piggyback on the same institutional infrastructure that serves the overall financial system and on the trust that it provides,” Mr Cartens remarked, warning that the relationship between the new digital currencies and the financial system could become “parasitic”. The onus, he argued, is on central banks and financial authorities to create a level playing field: “
This means ‘same risk, same regulation’. And no exceptions allowed.”
Protect investors and consumers
Mr Carstens also highlighted the inefficiencies of cryptocurrencies, stating that novel technology is not the same as better technology. “
While perhaps intended as an alternative payment system with no government involvement, it has become a combination of a bubble, a Ponzi scheme and an environmental disaster.” Bitcoin is not functional as money, he added, condemning it as a poor means of payment, a crazy way to store value, and a little-used unit of account due to its extreme price volatility and high transaction costs, and the lack of consumer and investor protection.
Mr Carstens was no less critical in his remarks about the environmental footprint left by cryptocurrencies, noting that the “mining” process used to create new Bitcoins currently consumes as much electricity as Singapore each day. Overall, central bank experiments have found that systems based on distributed ledger technology (DLT) are very expensive to run, and slower and much less efficient to operate than conventional payment and settlement systems.
Therefore, the current fascination with these cryptocurrencies seems to have more to do with speculative mania than any use as a form of electronic payment, except for illegal activities,” Mr Carstens concluded.
The recording of the event is available as video-on-demand (1 hour 20 minutes).
About Agustín Carstens
Agustín Carstens became General Manager of the BIS on 1 December 2017. Between 2010 and 2017 he was Governor of the Banco de México. A member of the BIS Board from 2011 to 2017, he was chair of the Global Economic Meeting and the Economic Consultative Council at the BIS from 2013 until 2017. He also chaired the International Monetary and Financial Committee (IMFC), the IMF’s policy advisory committee, from 2015 to 2017. Mr Carstens holds an MA and a PhD in economics from the University of Chicago.
Bundesbank President Jens Weidmann used his brief introductory statement to underline the wealth of experience Agustín Carstens has gathered in the long list of posts he has held in his professional career. “
I am certain the BIS will benefit from his enormous experience,” Mr Weidmann noted. Agustín Carstens was speaking at Frankfurt’s Goethe University as part of a lecture series sponsored by the Deutsche Bundesbank, Sustainable Architecture for Finance in Europe (SAFE), and the Center for Financial Studies (CFS).