Cryptocurrencies were used for evasion of laws and needed to face more regulation, the general manager of the Bank for International Settlements (BIS) said, CNBC reported.
Cryptocurrencies Need To Face More Regulation: BIS
Agustin Carstens told Joumanna Bercetche of CNBC that many digital coins were used for circumventing some regulations or doing some arbitrage in an interview aired on Wednesday.
He went on to add that many applications of some currencies lacked laws against the financing of terrorism and money laundering.
Virtual currencies, including Bitcoin, had netted massive gains over the last year, with investors looking to diversify their holdings in the coronavirus pandemic. For Bitcoin bulls, the cryptocurrency worked as a kind of digital gold, and they claimed it could serve as an inflation hedge in times of economic crisis.
But there was a dark side to cryptocurrencies due to their involvement in illegal activities. As they were pseudonymous, it was difficult to track down who was making transactions. Earlier this year, US Treasury Secretary Janet Yellen said the government needed to “curtail” crypto use for criminal transactions.
Bitcoin had gained 80% since the start of the year, though it declined 12% from over $61,000, the record high it hit earlier this month. Another digital coin, Ether, had more than doubled this year-to-date but was down 18% from $2,000 its record high.
Cryptocurrencies were notorious for the wild swings in the price they were subject to, according to Carstens, who added cryptocurrencies were being used as a “speculative vehicle”. According to him, cryptocurrencies posed no threat to central banks and the established financial system.
He ruled out the prospect of any dominance of cyber currencies and added that cryptocurrencies had not made any inroads in terms of working as money in normal transactions.
He said stablecoins could also be used for some applications referring to digital coins tied to external assets like the US dollar for curtailing price volatility. He added they had a very specific role for certain purposes, and he, therefore, saw no challenge to sovereign money from such private currencies.
His comments come in the backdrop of a number of central banks across the world exploring digital currencies of their own. China was the leader of the pack and had trialled its digital yuan across a number of cities, while Sweden’s central bank was also considering the introduction of a digital version of its krona currency with rapidly declining cash usage in the Scandinavian country.
In a report published last year, the BIS and a number of central banks that included the European Central Bank, the US Federal Reserve and the Bank of England published called for outlining some CBDCs or central bank digital currencies requirements. According to the recommendations, CBDCs needed to complement and not replace cash as also legal tender of other forms, and not harm financial stability, rather support it.
According to commentators, the push by central banks toward digital currencies came after Facebook’s planned introduction of its own token partnering with other private companies. It was initially called Libra but is now known as Diem. Regulators around the world promptly opposed the project over worries that it might undermine sovereign currencies.
According to commentators, that was due to the massive reach of Facebook, which over 2 billion people used. According to Carstens, stablecoins like libra needed strict regulation.
He added the issue was the backing of those currencies. He said there had been very many episodes in the history of finance where complete backing was claimed for something, but it did not work out fully backed in the end.
There had long been fears that tether, a more widely used stablecoin today, might have lacked enough cash reserves to back all the tokens that were being circulation. Tether’s parent company and crypto exchange Bitfinex in a settlement with the New York attorney, agreed to end an investigation into the firms over the issue.