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LONDON (Reuters) – El Salvador’s decision to make bitcoin legal tender is an interesting experiment with a speculative asset that does not pass the test to be a reliable means of payment, a senior world central bank official said on Friday .
FILE PHOTO: A banner that reads “We Accept Bitcoin, Free, Fast, and Contagion Free” is seen at a beach cafe on Punta Roca Beach in La Libertad, El Salvador on April 25, 2021. REUTERS / Jose Cabezas / File Photo
The Central American country on Wednesday became the first country in the world to adopt bitcoin as its national currency, saying it would help Salvadorians living abroad send funds home.
El Salvador is an interesting experience indeed, said Benoit Coeure, head of the innovation hub at the Bank for International Settlements (BIS).
We have made it clear to the BIS that we do not consider bitcoin to have passed the test of being a means of payment. Bitcoin is a speculative asset and should be regulated as such, Coeure said at the launch of a regulatory research center at the Bank of England (BoE).
The comments echo remarks from the International Monetary Fund, which said Thursday it had economic and legal concerns over El Salvador’s decision.
El Salvador replaced its national currency with the US dollar in 2001.
Rapid advances in private sector electronic payments and the reduction in the use of cash, accelerated by COVID-19, have forced central banks to consider developing digital versions of their own legal tender, called central bank digital currencies.
We have to be at the cutting edge of technology, said Coeure. We have to work with the private sector.
The BIS is establishing a network of innovation hubs around the world to enable central banks to share information on new payment technologies and track private sector initiatives, such as Facebooks Diem stablecoin.
Stablecoins are cryptocurrencies designed to have a stable value against traditional currencies or a commodity such as gold, to avoid the volatility that makes bitcoins and other digital tokens impractical for most exchanges. .
BoE Governor Andrew Bailey said regulators are cooperating closely on the potential impact of stablecoins on financial stability, as well as the development of their own digital currencies.
If that happens, it will be one of the most fundamental innovations in central bank history. It will bring us into a new era, Bailey said.
Earlier this week, financial regulators in major economies proposed strict capital rules for banks holding cryptocurrencies, and Bailey said any stablecoin-based payment system should meet the same standards as banks.
Reporting by David Milliken and Huw Jones Editing by Mark Potter
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