As Fiat Beats Bitcoin, BIS Head Eyes CBDCs

The dust has settled. The battlefield stands still.

And, as has been widely reported this week, Agustín Carstens, managing director of the Bank for International Settlements (BIS), has declared crypto a loser.

“A few years ago, cryptoassets and cryptocurrencies have been pitched as an alternative to fiat money,” Carstens told Bloomberg in an interview posted Wednesday (Feb. 22). “That battle is won.”

Carstens also said that technology does not pave the way for “trustworthy money” — and it is central banks and their infrastructure that give money “credibility.”

Separately, in a speech delivered in Singapore on the same day, Carstens noted that distributed ledger technology (DLT) could lead to new payment technologies and use cases. And in a nod to the convergence of banking infrastructure, credibility and technologies, he noted that there is a place for central bank digital currencies (CBDCs) and for tokenized deposits.

“CBDCs and tokenized deposits will appear in separate partitions in the unified ledger. Because they share a common ledger, they can be brought together and used in an efficient way, through smart contracts,” said Carstens – where CBDCs play the same role like central bank money, tokenized deposits are commercial bank money.

Replicates existing money

These offerings are, he said, ways to replicate existing money with technology.

“What makes central bank money and commercial bank money indistinguishable today is a complex and well-developed network of institutional arrangements, including regulation, supervision, deposit insurance and settlement on the central bank’s books,” he said, adding that “the same should be true. of CBDC and tokenized deposits.” Stablecoins don’t fit the bill here, he said, because they don’t have the same regulations in place.

The road towards CBDCs, we notice, is getting wider. As we reported here, countries spanning China, Singapore, Australia, Japan, Korea and Hong Kong are already piloting CBDCs, or planning to do so this year. The Bank of England is also in the mix.

Tokenized deposits offer an alternative to the stablecoin model and to crypto in general as they enable direct bank-to-bank activity. Rob Hunter, assistant general counsel and director of regulatory and legislative affairs at The Clearing House (TCH), told Karen Webster that the deposits will be supported by blockchain technology. The use of blockchain has become widespread, especially among multinational firms. In our research on blockchain and cross-border payments, we found that 56% of cross-border businesses use blockchain technology in their operations.

And while bitcoin has been used by 47% of businesses, the fact remains that regulatory clarity remains at the top of the list when it comes to deciding whether to use cryptos or stablecoins at all (cited by 52% of multinationals). Regulators are cracking down on crypto and stablecoin firms, warning of risks and even restricting some firms from issuing coins. The easiest regulatory “path” – especially for the use of digital payments and deposits – may be to rely on the money system and channels already in place. And if so, the battle against bitcoin – waged with CBDCs and tokenized deposits – may indeed be settled.