LONDON — Global central banks must think seriously about their approach to the growing cryptocurrency markets, the Bank of International Settlements (BIS) said.
The BIS — often known as the central banks’ central bank — used its quarterly report to discuss cryptocurrencies such as Bitcoin and Ethereum, saying that central banks must consider whether or not to issue their own digital currencies in the near future.
“In less than a decade, bitcoin has gone from being an obscure curiosity to a household name. Its value has risen – with ups and downs – from a few cents per coin to over $US4,000. In the meantime, hundreds of other cryptocurrencies — equalling bitcoin in market value – have emerged,” the report said.
BIS argues that central banks must look at questions of both privacy and efficiency when assessing digital currencies, as well as the financial stability implications that arise from those currencies.
“Central banks will have to consider not only consumer preferences for privacy and possible efficiency gains — in terms of payments, clearing and settlements — but also the risks it may entail for the financial system and the wider economy, as well as any implications for monetary policy,” the BIS said.
Cryptocurrencies have entered the consciousness of central banks and their most senior officials over the course of the last couple of years. Earlier this year, for example, Jens Weidmann, the head of Germany’s Bundesbank warned that digital currencies like bitcoin have the potential to make financial crises in the future even more devastating.
Weidmann said he believes that central banks will eventually create their own digital currencies to reassure average citizens that such currencies are safe and stable, but in doing so could increase the risk of bank runs in future crises.
“Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent,” he said in a speech in June.
Cryptocurrency regulation has also come into sharp focus in recent weeks, with regulators around the world starting to crack down on the market for so-called Initial Coin Offerings — where startups issue new digital coins to fund projects.
Regulators around the world have been cracking down on the cryptocurrency space since the start of the month. Regulators in China, South Korea, Hong Kong, and Britain have all moved to either ban or rein in activity in ICOs.
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