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The Bank for International Settlements (BIS), the organization that represents most of the world’s central banks, criticized bitcoin in its annual economic report, saying the cryptocurrency has few redeeming qualities.
The bank sharply criticized bitcoin and cryptocurrencies in general in a chapter of the report released Wednesday ahead of its full release on June 29. Cryptocurrencies are speculative assets rather than cash and are used in many cases to facilitate financial crime such as money laundering. and ransomware attacks.
Bitcoin in particular has few redemptive public interest attributes given its unnecessary energy footprint, according to the report.
Related: Bank of Israel Has Already Tested A Digital Shekel
The report came less than two weeks after the BIS Basel Committee indicated the level of risk it attributes to crypto assets by proposing that banks exposed to them set aside capital to cover losses.
Stablecoins, which are designed to be less volatile than other crypto assets by being backed by fiat currencies, have also come under scrutiny. The report called them an attempt to import credibility and said they are only good at the governance behind the promise of support and threaten to fragment the liquidity of the monetary system.
CBDCs move from concept to design
Cryptocurrencies and stablecoins are highlighted as part of a three-pronged threat to traditional financial services alongside disruption caused by big tech.
The BIS has placed these threats against the background of growing interest in central bank digital currencies (CBDCs), which have sparked the interest of most central banks around the world.
Related: Banque de France Expands Wholesale CBDC Experience
CBDCs are moving from concept to design, the report says, and could reshape the monetary institution.
The bank said digital money should be designed with the public interest in mind, ensuring an open payments platform in the shadow of a competitive playing field.
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He noted that the benefits of a CBDC depend on the competitive structure of the underlying payment system and the data governance arrangements. CBDCs based on digital ID could improve cross-border payments, limiting the risks of currency substitution, he said.
According to the BIS, CBDCs would function optimally if they were based on a two-tier system in which the majority of customer-facing activities would be handled by commercial banks and other payment providers.
Three months ago, the bank released a detailed research note highlighting the importance of countries working together to remove traditional banking frictions for CBDCs.
The bank also noted that the most promising design for the day-to-day use of CBDCs is that they are built on an identity scheme, in which data privacy is protected while preventing illicit activity. While not entirely new concepts, the discussion shows that CBDCs, in the eyes of the bank for central banks, are on their radar.
See also: BIS researchers tackle implications of interoperable CBDCs
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