Crypto fears are now becoming a reality, says central bank agency BIS

The Bank for International Settlements said the recent implosion in the cryptocurrency market shows that the dangers of decentralized digital currencies that have long been warned are becoming a reality.

The Bank for International Settlements, the global central bank protector, issued a warning in its upcoming annual report, which also urged greater efforts to develop attractive central bank digital currencies.

Agustin Carstens, general manager of BIS, pointed to the recent collapse of TerraUSD and luna “stablecoins”, as well as the 70% plunge in crypto market leader Bitcoin, as signs of structural problems.

Without a government-backed institution with access to tax reserves, any form of currency ultimately lacks credibility. “

“I think all of these weaknesses that were pointed out earlier have come true,” Carstens told Reuters. “You just can’t resist gravity… at some point you really have to face the music”.

Analysts estimate that the crypto market as a whole has lost more than $2 trillion in value since November as its troubles have snowballed.

Carstens said the financial crisis is not expected to trigger a systemic crisis like the global financial crisis caused by bad loans. But he stressed that the losses would be huge and that the opaque nature of the crypto world has led to uncertainty.

“From what we know, it should be fairly manageable,” Carstens said. “However, there are a lot of things we don’t know.”

Central Bank Digital Currency (CBDC)

The Bank for International Settlements is a long-time skeptic of cryptocurrencies, and its report lays out a vision for a future monetary system—where central banks use the technological advantages of bitcoin and its ilk to create digital versions of their own currencies.

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About 90% of monetary authorities are now exploring what is known as CBDC. Many hope it will equip them for the online world and resist cryptocurrencies. But the BIS wants to coordinate key issues, such as ensuring they operate across borders.

The challenges at hand are mostly technical, similar to the way in which the world of mobile phones required standardized coding in the 1990s. But there are also geopolitical issues, as the West has weakened ties with countries like China and Russia.

“This (interoperability) has been a topic on the G20 agenda for a long time. So I think there’s a good chance it’s going to move forward,” Carstens said, adding how there could be some “real” – Over the past year, trials have been conducted with different CBDCs for life”.

When asked how long it would take to agree on an international standard for CBDC interoperability, he said: “I think in the next few years. Maybe 12 months is too short.”

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