Bank for International Settlements Rejects Crypto as Money in Report to G20
The Bank for International Settlements (BIS) has released a report to the G20 finance ministers, emphasizing the "inherent structural flaws" in cryptocurrencies that prevent them from becoming recognized as money. The report highlights issues related to stability, efficiency, accountability, and integrity as key concerns with crypto.
Titled "The crypto ecosystem: key elements and risks," the BIS report acknowledges the growing presence of cryptocurrencies in the mainstream financial system while downplaying their role as a form of currency. It recognizes that cryptocurrencies, including Bitcoin (BTC), have transitioned from a niche activity to a phenomenon that affects the wider financial landscape, attracting millions of retail users and institutional investors.
The authors of the report also admit that there are "elements of genuine innovation" within crypto, particularly in terms of programmability of money. This programmability allows for the automation and seamless integration of financial transactions, presenting new possibilities for money. The BIS has previously expressed interest in this concept and mentioned it in a separate report on central bank digital currencies (CBDCs).
However, despite recognizing these innovations, the BIS asserts that crypto has not effectively utilized innovation for the benefit of society. It remains primarily self-referential and does not contribute significantly to financing real economic activities. As a result, the report concludes that crypto is unsuitable to play a significant role as money in the world.
The BIS report's stance on cryptocurrencies aligns with its role as an international financial institution focusing on monetary and financial stability. While acknowledging the advancements and growing interest in crypto, the BIS highlights the inherent flaws that undermine its potential as a widely accepted form of money.
As the crypto landscape continues to evolve, the industry will need to address the concerns raised by institutions like the BIS in order to gain broader recognition and acceptance. The report serves as a reminder that cryptocurrencies must overcome significant challenges related to stability, efficiency, accountability, and integration with real economic activities if they are to play a substantial role in the future of global finance.