Money in the Digital Age: What Role for Central Banks?

Agustín Carstens, General Manager of the BIS, sees cryptocurrencies as a “threat to financial stability" and urges for regulatory interventions

Cryptocurrencies are currently one of the most discussed topics in finance. In a Policy Lecture on 6 February, jointly organized by SAFE, CFS and Deutsche Bundesbank, Agustín Carstens joined the ranks of other important global policy makers to warn against the “meteoric rise” of digital currencies. The former Governor of the Mexican central bank urged for policy interventions in the first major public speech in his new role as General Manager of the Bank for International Settlements (BIS).

While cryptocurrency technology may have the potential to reshape global finance, its position and role for financial markets in the future will crucially depend on the question of how it will be regulated. The market capitalization of cryptocurrencies rose by more than 1,500 % in 2017. Carstens made clear that without adequate policy interventions and regulation cryptocurrencies could become a threat to financial stability. He described the soaring price of bitcoin, the most widely known cryptocurrency, as a mixture of “a bubble, a Ponzi scheme and an environmental disaster” that can have adverse effects on public trust in central banks.

Building upon the theory and history of money, Carstens pointed out that bitcoin and other cryptocurrencies do not fulfill the requirements to be used “as a common means of payment and a stable store of value.” Furthermore, regulation is needed to tackle concerns related to consumer and investor protection. Despite the extensive list of possible drawbacks, Carstens also highlighted the potential of new financial technologies, including cryptocurrencies. In his opinion, two aspects are particularly important for regulators in this respect: First, the relationship between real and cryptocurrencies should not become “parasitic” and, second, cryptocurrencies need to be subject to the same regulation as real currencies.

>> Video of the lecture