Central bankers see limited role for crypto in reserve operations

[ad_1]

Central bankers are skeptical that bitcoin and other cryptocurrencies will supplant gold as a safe store of value, but are optimistic about the outlook for official digital tokens as authorities consider how to respond to the boom in crypto.

Nearly 85% of reserve managers say they don’t expect cryptocurrencies to replace the precious metal in their currency reserves, according to an annual UBS survey of 30 major central banks.

More than a quarter of respondents said bitcoin and its peers have investment potential as uncorrelated assets that don’t move in tandem with other markets, but 57% of officials said they didn’t expect cryptocurrencies to have a significant impact on their reserve operations at UBS.

The cautious sentiment from central bank officials comes as the cryptocurrency industry has exploded in recent years and has prompted official institutions to think more seriously about how to regulate these assets and to what extent they should play a role. role in their operations.

Many cryptocurrency advocates see digital tokens as a way to preserve the value of their savings at a time when central banks around the world have launched massive stimulus packages to fight the pandemic, raising fears of a period of higher inflation.

However, the intense volatility of many coins has distanced many traditional investors from the asset class and eroded its appeal as a stable store of value, according to investors and analysts.

While central bank officials have doubts about private cryptocurrencies, they are increasingly confident about the prospect of official coins or central bank digital currencies.

About 60% of central bank reserve managers surveyed by UBS said they expect at least one G7 central bank to make digital currencies directly accessible to consumers over the next five years. More than 80% said they expected the central bank’s “wholesale” coins, which would be made available to major financial institutions, to be released during the period.

Officials said two of the main motivations behind the central bank’s pursuit of digital currencies were to improve the retail payment system and upgrade the broader financial infrastructure, including key functions such as clearing. and the regulations. They also said these central bank coins could help reduce crime and money laundering, according to UBS.

China is one of the world leaders in central bank-backed tokens, with its digital yuan already in the testing phase at a time when major central banks elsewhere are only exploring similar projects.

In traditional financial markets, reserve managers have flagged high levels of debt in the global economy as a key risk as well as a failure to end the pandemic. The study also highlighted the continued increase in the share of the Chinese renminbi in reserves, which Massimiliano Castelli, one of the authors of the UBS report said, could reach up to 15% of holdings during the year. next decade.

[ad_2]