JOHANNESBURG - The world's central banks cannot ignore the growth in cryptocurrencies and may at some point have to consider whether it makes sense for them to issue their own digital currencies, according to the Bank for International Settlements (BIS).
“Whether or not a central bank should provide a digital alternative to cash is most pressing in countries, such as Sweden, where cash usage is rapidly declining,” the BIS said in its quarterly review. “But all central banks may eventually have to decide whether issuing retail or wholesale CBCCs (central banks cryptocurrencies) makes sense in their own context.”
In making these decisions, institutions will need to take into account not only privacy issues and efficiency gains in payment systems, but also potential economic, financial and monetary policy repercussions. “In less than a decade, Bitcoin has gone from being an obscure curiosity to a household name,” BIS said.
“While it seems unlikely that Bitcoin or its sisters will displace sovereign currencies, they have demonstrated the viability of the underlying blockchain or distributed ledger technology.”
The analysis came at the end of a rough week for digital currencies, with JPMorgan Chase chief executive Jamie Dimon calling bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.
But with Bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology.
According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue directly convertible units.