One of Bitcoin’s sharpest critics highlighted the risks of central banks issuing their own digital currencies to the general public, saying it could undermine both financial stability and monetary policy-making.
Agustin Carstens, general manager at the Bank for International Settlements, once likened Bitcoin to a “a bubble, a Ponzi scheme and an environmental disaster.” In a speech in Dublin on Friday he cited the example of a financial panic, which in a world with a central bank-issued digital currency (CBDC) might lead people to shift money to accounts at the monetary authority from commercial banks, undermining the system.
Other downsides of CBDCs include potential changes to how interest rates affect the public’s demand for money and lead to bigger central bank balance sheets, which would necessitate a buildup of assets possibly impacting financial market liquidity, he said.
“There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system,” Carstens said in the speech at the Central Bank of Ireland. “Central banks do not put a brake on innovations just for the sake of it. But neither should they speed ahead disregarding all traffic conditions.”
Combined with cryptocurrencies’ surge in popularity, a big drop in the use of cash for payments in countries such as Sweden has raised questions about whether central banks should supplement their existing offer of banknotes with digital tokens for the public.
So far, officials are progressing carefully in this area. The Swiss National Bank sees “no compelling” case for a CBCD, and according to a BIS report, just a handful of central banks expect to issue their own cryptocurrency in the next decade.