In an interesting development, reports submitted to the G20 finance ministers and central bank governors by the Bank for International Settlements Innovation Hub (BISIH) have elicited differing views on cryptocurrencies and central bank digital currencies (CBDCs). The reports, intended to inform discussions at a forthcoming meeting of the G20 financiers, had decidedly contrasting conclusions about these related technologies.
The BISIH cryptocurrency report offers an overview of the crypto ecosystem including cryptocurrencies, stablecoins, and decentralized finance (DeFi) and outlines what it terms as structural flaws and risks. It highlighted non-infrequent issues such as the centralization of much crypto trading, the instability of stablecoins, and what it refers to as the irreversible nature of smart contracts. The report offers rare insights as well, insinuating that human nature inclines crypto investors to chase prices, buying high and selling low – a risk also seen in traditional finance. Perhaps surprisingly, the report pointed to the growing interconnectedness between crypto and the real economy as posing real risk.
Contrastingly, the report championed CBDCs as underpinning the future monetary system and as foundations upon which future innovations can be built. Although the BISIH has implemented 12 CBDC proofs of concept, it is noteworthy that their acceptance and synergy with new technological innovations are still a learning curve.
In this emerging contrast, one might perceive an ongoing tension between inherent structural flaws in cryptocurrencies that render them unsuitable to play a significant role in the monetary system, as the BISIH suggests, and the promise of CBDCs’ stability in market dynamics. The divergence in these findings, though significant, should not necessarily be seen as binary but rather as pointers that regulatory bodies such as the BIS have a broader scope when dealing with a monetary phenomena as complex as cryptocurrencies.
One might argue that with the potential destabilization that could stem from an unregulated market, and the risk of driving transactional operations underground if overly regulated, the key issue here is the balancing act of regulation and innovation.
However, whether one sees these findings as a condemnation of cryptocurrencies or a championing of CBDCs, the evidence of increased synergy between crypto and the real economy remains and needs to be put into perspective. It is possible that these findings steer the discourse away from the quintessential argument of the unsuitability of cryptocurrencies and bring to focus the fact that these two systems can and do coexist as shown in developed economies. They each have their drawbacks, but also their unique advantages that promise to reshape the face of finance.
Source: Cointelegraph
