In Brief:
- BIS general manager, Agustin Carstens, delivered a speech on “Digital currencies and the soul of money”.
- The speech revolved around how private stablecoins and DeFi can pose a risk to financial stability.
- He also claimed Central Banks will continue to remain in a position to provide trust in money, even in this digital era.
Agustin Carstens, the general manager of the Bank of International Settlements (BIS), criticized private stablecoins and decentralized finance (DeFi), emphasizing central bank-led financial innovation as the best possible way to the future of money.
“The soul of money belongs neither to a Big Tech nor to an anonymous ledger,” Carstens went on to say that the soul of money is trust.
He, in his speech entitled “Digital currencies and the soul of money,” made remarks on decentralized monetary systems saying Central Banks are the key institutions that have developed trust in money, while alternatives have often ended badly.
He delivered his remarks at Goethe University’s Institute for Law and Finance (ILF) conference on “Data, Digitalization, the New Finance and Central Bank Digital Currencies: The Future of Banking and Money” on Tuesday.
The economist’s argument revolved around how DeFi applications are delivering is at odds with their proclaimed principles of disintermediation. He showed his concern for the absence of KYC and Anti-Money laundering rules, which is one missing important factor in DeFi’s growth. Furthermore, he pointed out stablecoin could disintermediate incumbent banks, which can even pose a threat to financial stability.
To illustrate this better, he even stated three plausible scenarios for the future of money. In addition to the global financial system led by central banks, he envisaged a world where the big tech-powered stablecoins and distributed ledgers dominate the bulk of financial activity in the future.
Such an arrangement, according to him, can fragment national and global monetary systems. This is because the stablecoin scenario is fraught with market power and data concentration at the hands of a few dominant private money issuers.
He also suggested that relying solely on private money, users may be handing the keys to our financial system over to private entities. Trusting in big tech global stablecoin poses a threat to the system, as the private entities are often driven by profits and accountable only to their stakeholders and other insiders.
The BIS’ top official also claimed that In the age of digital innovation, central banks are actively engaging to introduce new public goods such as retail fast payment systems, wholesale financial market infrastructures, and central bank digital currencies (CBDC).
The BIS chief officer’s statement came as no surprise when he shared his vision of the monetary future, which primarily focuses on building a global network of CBDCs.
One such effort came into view in November last year when the NY Fed announced a strategic partnership with BIS to explore the global financial system. The partnership intended to explore digital currency concepts including central bank digital currency (CBDC) development.
As per Carstens, central banks are at the core of the financial system and are non-profit driven. Hence, central banks would act to advance the interests of the public.
He wrapped up his speech by saying – “central banks and public authorities are still the glue that holds the monetary and financial system together. Private-sector services and innovation are essential and should thrive on this foundation. But trust can never be outsourced or automated.”
