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BIS Report at G20 Highlights Concerns Over Crypto's Viability as Monetary Tool

Updated: Jul 20, 2023

BIS is headquartered in Basel, Switzerland
Image source: iStock

BASEL, CH – In a recent report sent to the finance ministers of the world's largest economies, the Bank for International Settlements (BIS) raised concerns about crypto's viability as a monetary tool. Central bankers, eager to protect their fiat currencies, highlighted the inherent structural flaws and risks associated with cryptocurrencies. The report also emphasized the lack of real economic activity and the challenges of scalability faced by the crypto industry.

Key Features of the BIS Report

1. Inherent Structural Flaws Undermine Cryptocurrency's Monetary Role

  • The BIS report highlights inherent structural flaws that make cryptocurrencies unsuitable for playing a significant role in the monetary system. The report cites issues of instability, inefficiency, and accountability, outweighing potential innovative benefits such as automated payments.

  • The collapses of FTX and the Terra ecosystem, along with the risk of hacks and rug pulls, have exposed vulnerabilities within the crypto market. Furthermore, scaling challenges hinder cryptocurrencies from becoming fully-fledged payment systems due to congestion on permissionless blockchains.

2. Limited Economic Impact and Self-Referential Nature

  • Despite the involvement of millions of retail and institutional investors, the BIS report states that cryptocurrencies have yet to contribute to real economic activity. The current state of the crypto market remains largely self-referential, emphasizing speculative investments rather than productive economic growth.

  • The lack of connection between cryptocurrencies and real-world economic fundamentals raises concerns among central bankers, who view stablecoins as potential disruptors to centralized monetary policy, especially in emerging markets.

3. Central Bankers' Skepticism and Caution

  • Central bankers' skepticism towards cryptocurrencies is not a new phenomenon, as they fear that these new payment systems could undermine traditional fiat currencies issued by central banks.

  • The cautious stance of G20 members regarding stablecoins, which are cryptocurrencies tied to the value of fiat currencies, stems from concerns over the potential disruption they could cause to centralized monetary policy, particularly in emerging markets.

Concerns Over Crypto's Viability

The BIS report brings attention to the reservations held by central bankers worldwide regarding crypto's viability as a monetary tool. While acknowledging the potential for innovation, the report emphasizes the inherent flaws, instability, inefficiency, and accountability issues associated with cryptocurrencies.

Furthermore, the lack of significant real economic activity and challenges in scaling the technology pose additional obstacles to cryptocurrencies' widespread adoption as a payment system. As the G20 finance ministers and central bank governors gather to discuss these matters, the fate of cryptocurrencies in the global monetary system remains uncertain.


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