A new report from the G7 powers and the Bank of International Settlements (BIS), the central bank of the world’s central banks, argues bitcoin and its ilk have failed to evolve into an “attractive means of payment or store[s] of value” and takes aim at the “risks” and “challenges” posed by stablecoins.
The report, dubbed “Investigating the Global Impact of Stablecoins,” was published as a collaboration between BIS’s Committee on Payments and Market Infrastructures and a G7 working group. An intergovernmental economic organization, the G7 is comprised of some of the world’s most advanced economies, namely the U.S., the United Kingdom, Germany, Japan, France, Canada, and Italy.
Therein, the two bodies’s contributing experts concluded that the main “potential benefits” of currency-pegged stablecoin cryptocurrencies will only be brought to fruition if an array of challenges are first generally addressed.
The BIS and G7 working group listed these challenges as issues pertaining to tax compliance, investor protections, privacy, money laundering, terrorist financing, and more.
Moreover, the organizations said that stablecoins could eventually pose challenges to international financial institutions, insofar as they argued these crypto assets could challenge fair competition, financial stability, monetary policy, and the international monetary system itself.
Accordingly, the participants asserted that stablecoin efforts should not move forward until all of the aforementioned obstacles get addressed.
“The G7 believes that no global stablecoin project should begin operation until the legal,
regulatory and oversight challenges and risks outlined above are adequately addressed, through
appropriate designs and by adhering to regulation that is clear and proportionate to the risks,” the report said.
BIS is Pessimistic Toward Crypto
Somewhat unsurprisingly, the BIS — which facilitates international monetary cooperation among the largest financial institutions in the world — has garnered something of a reputation for casting shade at cryptocurrencies in recent times.
For example, last summer the BIS published a report titled “Cryptocurrencies: looking beyond the hype.”
In case it wasn’t immediately apparent from the title, the report spent two dozen pages outlining what the BIS characterized as the major drawbacks of cryptocurrencies, with these drawbacks including excessive decentralization, excessive energy use, price volatility, and poor scalability.
As the bank of banks said at the time:
“Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value. Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.”
Just days after that report, the newly elected general manager of the BIS, Agustin Carstens, gave an interview in which he called for “young people” to “stop trying to create money.” In those same remarks, Carstens added:
“No, they are not money … Cryptocurrencies do not fulfil any of the three purposes of money. They are neither a good means of payment, nor a good unit of account, nor are they suitable as a store of value. They fail dramatically on each of these counts.”
In this light, it’s no wonder the BIS’s latest October 2019 crypto report is mostly skeptical toward cryptocurrencies. The institution’s leader and his peers generally don’t view these assets as having credibility.
IMF Experts Envision a Way Forward
Not all of the world’s major banking officials are against the concept of stablecoins.
Last month, two of the top officials at the International Monetary Fund (IMF) wrote an article outlining how stablecoins might eventually come to directly rely on central bank reserves for their stability, arguing:
“Clearly, [relying on reserves] would enhance the attractiveness of stablecoins as a store of value. It would essentially transform stablecoin providers into narrow banks—institutions that do not lend, but only hold central bank reserves. Competition with commercial banks for customer deposits would grow stronger, raising questions about the social price tag.”