Agustin Carstens, the head of the Bank for International Settlements (BIS), believes that the battle between cryptocurrencies and fiat money is over and the latter has emerged as the winner.
“We have won this battle… It is not enough to have only one technology behind a currency.” Carstens told Bloomberg TV on Wednesday in his interview. “Only the legal, historical infrastructure behind central banks can give credibility to money.” – added the head of the BIS.
Carstens also expects “determined action” from the G20 countries to regulate digital assets more strictly, stating that cryptocurrencies can only exist “under certain conditions”.
The head of the BIS criticized cryptocurrencies on three points
This was not the first time that Carstens spoke out against cryptocurrencies. For example, the head of the BIS co-authored an International Monetary Fund (IMF) report published in September 2022, in which he outlined three flaws that prevent cryptocurrencies from functioning as a “solid basis for the monetary system.”
According to Carstens, one such problem is that cryptos are often very volatile. In addition, according to him, stablecoins tied to fiat money “only lend credibility to real money issued by central banks.”
The second mistake is that while fiat money is always backed by the central bank of the given country, which guarantees the stability of the currency, digital assets do not have any central government-level institution.
According to the head of the BIS, the third problem is fluctuating fees.
“For example, when the Ethereum network approaches its transaction limit, fees increase exponentially. As a result, over the past two years, users have started using other blockchains, leading to an increasing fragmentation of the DeFi market.” – can be read in the report written by Carstens.
The US government has expressed concern about hacker attacks involving cryptocurrencies
Last October, the US Financial Stability Oversight Council (FSOC) issued a warning that digital assets could essentially undermine the country’s financial stability.
Despite the decentralized nature of cryptocurrencies, problems can arise due to the vulnerability of the distributed ledger technology underlying the assets, the organization found.
“Crypto-assets can pose a risk to the stability of the American financial system, which is why their proper regulation, including the enforcement of existing legislation, is necessary. It is vital that government actors work together to regulate digital devices.” – reads one of the FSOC in its meaning.
In addition, the US government has also expressed concern about cryptocurrencies, which they say are at risk of hacking, financial loss, and fraud. National Security Advisor Jake Sullivan brought cryptocurrencies to the attention of the administration in June 2021, following the ransomware attack on the Colonial Pipeline. Colonial was forced to pay the hackers 75 bitcoins, equivalent to $4.4 million at the exchange rate at the time.
Incidentally, in June 2021, former President Donald Trump also indicated that he is not a fan of bitcoin, pointing out that it competes with the US dollar as the world’s reserve currency.