Crypto is a “speculative vehicle” and should be regulated, says the head of the central bank group BIS
A visual representation of digital currencies.
Yuriko Nakao | Getty Images
LONDON – Cryptocurrencies are used to evade laws and should be more regulated, according to the General Manager of the Bank for International Settlements (BIS).
Many digital coins are “used to arbitrage or to circumvent some regulations,” Agustin Carstens told CNBC’s Joumanna Bercetche in an interview broadcast Wednesday.
He added that anti-money laundering and terrorist financing laws “are absent in many applications of some cyber currencies”.
Bitcoin and other virtual currencies have seen tremendous gains over the past year as investors tried to diversify their holdings in the coronavirus pandemic. Bitcoin bulls regard the token as a kind of “digital gold” and claim that it can act as an inflation hedge in times of economic crisis and massive impulses.
However, cryptocurrencies have also gained a reputation for their involvement in illegal activities. They are pseudonymous, which makes it harder to find out who is doing transactions. Earlier this year, US Treasury Secretary Janet Yellen said the government must “restrict” the use of crypto for criminal transactions.
Bitcoin is up more than 80% since the start of the year, though it is down about 12% from a record high of over $ 61,000 earlier this month. Another digital coin, Ether, has more than doubled since the start of the year but is down 18% from the record high of over $ 2,000.
Cryptocurrencies are known to be subject to wild price fluctuations. Carstens said he thinks cryptocurrencies are being used as a “speculative vehicle” and don’t see them as a threat to central banks and the established financial system.
“I don’t see any dominance of cyber currencies,” he said, adding that cryptocurrencies “have made no progress in working as money.”
“Stable coins also have some limited uses,” Carstens said, referring to digital coins tied to external assets like the US dollar to minimize price volatility. “They have their own role for very specific purposes. So I see no challenge … for sovereign money that comes from these privately used currencies.”
His comments come as various central banks around the world examine their own digital currencies. China has led the pack and tested its digital yuan in a number of cities, while the Swedish central bank is also considering introducing a digital version of its krona currency as cash use in the Scandinavian country is rapidly declining.
Last year, the BIS and several central banks, including the US Federal Reserve, European Central Bank and the Bank of England, released a report setting out some key requirements for central bank digital currencies (CBDCs). They recommended that CBDCs add to, not replace, cash and other forms of legal tender, and help rather than detract from financial stability.
Central banks’ push towards digital currencies was partially catalyzed by Facebook’s plan to partner with other private companies to launch its own token. Originally called Libra, but now known as Diem, the project was immediately criticized by regulators around the world for fear that it could undermine national currencies.
This is particularly due to the enormous reach of Facebook, which is used by well over 2 billion people. Carstens warned that stable coins like the scales would have to be strictly regulated.
“The question of what supports these currencies is crucial,” he said. “We have many, many episodes in financial history where something that is meant to be fully supported is not fully supported in the end.”
There have long been fears that Tether, one of the most widely used stablecoins today, may not have enough cash reserves to secure all of the tokens in circulation. Ifinex, the parent company of Tether and Crypto Exchange Bitfinex, recently reached an agreement with the New York Attorney General to end an investigation into the companies on the matter.
“I think we have to work on regulation so that these instruments are functional,” said Carstens.