Crypto, stablecoins and NFTs risk money uberization, warns Mark Carney

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The proliferation of cryptocurrencies, privately issued stablecoins like Facebooks Diem, and non-fungible tokens could prove difficult for central banks to override their own plans, the former governor of the Bank of America warned. England, Mark Carney.

Central bank digital currencies are being explored by regulators in the UK, US, China and elsewhere as banks attempt to innovate their monetary systems amid the rise of cryptocurrencies and other private solutions. The Bank of England effort is in its early stages of proposal, while Beijing has already started consumer testing.

Carney said the widespread adoption of cryptocurrencies like bitcoin, and private digital currency like Facebooks Diem, could cause major headaches for central banks if they were to experience a systemic crisis.

In baseball it’s three strikes and you’re out. In cricket, it’s only the equivalent of one, and for systemic payment systems, one is too many, Carney said at an annual conference for the Bank for International Settlements on June 28.

If that means, as a must, very rigorous monitoring and rules for private stablecoins, then what would differentiate them from CBDCs?

READ Can central bank digital currencies and bitcoin coexist?

He added that cryptocurrencies will have no value in the future unless they are able to entice investors by acting as a form of digital gold, which the former governor dismissed as a possibility. This includes NFTs, which are smart contracts built on blockchain networks and are often traded through cryptocurrency tokens such as ether.

When it comes to crypto, only the niche will survive, Carney said. Ultimately, crypto either has such extrinsic value without a use case, or a use case as an NFT that perfects ownership, which is a niche by definition in the sense that it is not. not fungible.

The tokens at the heart of programmable networks should only remain that, of symbolic value, he added.

The value will be traded through CBDCs which link these networks to the larger financial system. All native cryptocurrencies of sufficient scale will be dominated by CBDCs, or very strictly regulated stablecoins for the sake of systemic stability.

Carneys’ comments come as the battle to develop a central bank digital currency amid a series of private sector projects continues. Diem recently shifted its focus to launching the token in the United States rather than Geneva, after facing significant regulatory hurdles in Europe.

READFacebook stablecoin Diem project drops Swiss license application in US hub

The Canadian banker said regulators should be careful not to lock in existing benefits for tech companies through payment systems, as these could strengthen corporate monopoly in areas such as monetary structures, which central banks could. have a hard time undoing.

There are powerful network effects in social media and in money. If they are combined, they could reinforce each other. Convenience, once established, can be very difficult to resolve in uberizing money, he said.

Carney warned that any private digital currency, such as those offered by Facebook and private companies such as Tether, must be overseen by a central bank if it is to be effectively regulated.

Such a concept would not be popular among cryptocurrency enthusiasts, who often praise the decentralization of finance away from regulators.

While senior officials in the United States have recently started to appear to endorse cryptocurrencies as an asset class via vehicles such as exchange traded commodities, Carneys’ words will not be a happy read for anyone. hopes bitcoin could be the payment system of the future.

To contact the author of this story with comments or news, email Emily Nicolle

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