The Manager of the ‘central bank of central banks’ took a big chunk of a recent speech to rubbish the rise cryptocurrencies.
Agustín Carstens, General Manager of the Bank of International Settlements (BIS) – essentially the ‘central bank of central banks’, an organisation that provides services designed to support central banks and other monetary authorities, as well as operating as a think-tank and analyst on financial matters – has used a recent speech to double-down on its view that cryptocurrencies fail as money.
Speaking last week at the at the Finance and Global Economics Forum of the Americas, at the University of Miami Business School, Carstens echoed some of the points made in a BIS report from June, which cast doubt on distributed ledgers’ ability to cope with the volume of trades required it to become mainstream financial technology.
In a similar manner to a crypto-negative missive from the Bank of England head Mark Carney delivered earlier in the year, Carstens’ speech traced a rough history of the money, and outlined its general purpose within the financial system. These are its role as unit of account, payment instrument, and store of value.
After talking about the massive developments in the digitisation of money within the existing banking system, he then turned his attention to cryptocurrencies – and, as you may expect from a body so firmly entrenched as the incumbent in the current financial system, Carstens’ views were not positive.
“Are cryptocurrencies money?” he began by asking. He already had his answer, though. “No.”
He went on to point out that, in the BIS’ opinion:
“Cryptocurrencies, such as Bitcoin, Ether and Tether, do not serve the core functions of money. No cryptocurrency is a true unit of account or a payment instrument, and we have seen this year that they are a poor store of value.”
The Bank sees cryptos as stuck in a vicious cycle that denies them the chance of adoption: retailers won’t take them on because consumers don’t use them, while consumers won’t use them because retailers won’t accept them.
“As a means of payment, the acceptance of cryptocurrencies has not reached critical mass and is unlikely to do so for a number of reasons,” Carstens asserted, before pointing to BIS’ previous research and calling them “highly inefficient and expensive.”
“Cryptocurrencies are,” he concludes, “at best, an asset of some sort.”
“Perhaps an asset comparable to a piece of art for those who appreciate cryptography. Buyers of cryptocurrencies are buying into nothing more than a software algorithm. Some firms are trying to back cryptocurrencies with an underlying asset, such as cash or securities. That sounds nice, but it’s the equivalent of making art from banknotes or stock certificates. The buyer is still buying an idea or a concept.”
He did, then, get around to addressing the virtual elephant in the room.
“Cryptocurrency enthusiasts often highlight the ability to avoid existing institutions,” like his own, he pointed out. “But is that a good thing?” he pondered before talking about the extensive spate of cryptocurrency thefts in 2018 and reports saying nearly half of Bitcoin transactions are associated with illegal activity.
Carstens, who – according to Reuters – earlier this year described Bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster” wound up his speech by saying he struggled to see cryptocurrencies taking off in any major way: “There have been many attempts in history to create private money;” he said, but “all have eventually failed.”
“But,” he told his young audience of students, “money is a social construct” and “the future of money and payment systems is in your hands.”
“The form and use of money have historically been driven by social, technological and political factors, among other things. The future will be about your preferences”