By Marc Jones
LONDON (Reuters) – Crypto markets were not wiped out by last year’s turmoil, while the new wave of central bank digital currencies (CBDCs) will face geopolitical limits, predicted the new head of innovation at the Bank for International Settlements ( BIS).
Dubbed the “central bank of global central banks,” the BIS has long been critical of cryptocurrencies, even comparing bitcoin to a Ponzi scam and a market bubble in the past.
The collapse of Sam Bankman-Fried’s FTX empire last year, as well as Celcius, Three Arrows Capital and a slew of “stablecoins”, saw many of the BIS warnings come true as over $2 trillion was wiped out. of the sector’s value.
Since the beginning of 2023, however, there has been something of a recovery, including a 40% rise in the price of bitcoin.
“I assume the industry will learn from these failures and come up with new things,” Cecilia Skingsley, the new head of the BIS’s “Innovation Hub”, told Reuters in her first in-depth interview since taking office.
The former Swedish central bank official also said the problems did not appear to have affected central banks’ plans for what could be a range of nationally issued central bank digital currencies (CBDCs) in the coming years.
The BIS has been coordinating many of the international experiments around CBDCs, which can be built for public use or just for banks to use behind the scenes in “wholesale” currency markets.
Eleven countries have already launched CBDCs, while over 100 others, representing over 95% of global GDP, are now exploring them, with this year set to see some significant milestones.
That global boost comes as the use of physical cash drops globally and authorities look to ward off the threat to their money-printing powers posed by bitcoin companies and tech giants.
Sanctions imposed on countries like Russia and Venezuela in recent years have been another factor, including for longtime US allies like Europe who want to secure an alternative to the Visa, Mastercard and Swift networks.
“You have to be resilient enough when it comes to defense, when it comes to food supplies, but it also becomes important when it comes to payment systems,” Skinsley said.
While CBDCs are expected to make higher-tech currencies easier and cheaper to send to other countries, “tectonic plates” are likely to form with the new forms of electronic money, fully interoperable only between geopolitically aligned countries, Skingsley said.
“We will never have full interconnection,” Skingsley said, adding that the BIS’s work is aimed at making CBDCs as versatile as possible.
(Reporting by Marc Jones)
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