Bank for International Settlements (BIS) chief Agustin Carstens has been a vocal opponent of bitcoin and other cryptocurrencies, making his feelings known in no uncertain terms on many occasions. But the general manager of the BIS – popularly known as the “central banks’ central bank” – is having a change of heart.
The Financial Times reports that the Mexican economist is now supporting digital currencies:
“Many central banks are working on it; we are working on it, supporting them,” Mr Carstens told the Financial Times.
“And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies.”
Agustin Carstens’ remarkable volte-face
It wasn’t long ago when Carsten was dead against central banks working on their own digital currencies. He believed that crypto assets backed by central banks could result in financial instability. This view of his is not surprising as he called bitcoin and other cryptocurrencies “a bubble, a Ponzi scheme, and an environmental disaster.”
Agustin Carstens holds the view that bitcoin is an asset class that does not serve the purpose of money, arguing that the massive volatility associated with this space makes crypto assets a poor store of value:
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“No cryptocurrency is a true unit of account or a payment instrument, and we have seen this year that they are a poor store of value. Buyers of cryptocurrencies are buying into nothing more than a software algorithm.”
So Carstens’ comment that the BIS is now “supporting” other central banks seem surprising given his fierce criticism of bitcoin. But it looks like he is afraid of losing relevance in a rapidly evolving fintech space where big players such as Facebook and other investment banks are coming up with their own crypto assets.
The BIS chief is being forced to love bitcoin and crypto
Big banks and government institutions across the globe are worried that the launch of Facebook’s Libra cryptocurrency will disrupt the financial markets.
They are afraid that the social media giant is on track to create a parallel financial system thanks to its massive user base, reducing central banks to relics of the past.
Former World Bank chief economist Kaushik Basu holds the opinion that the adoption of Libra will be harmful for central banks if billions of users decide to keep their money outside of the formal banking system. In such a scenario, the monetary policy tools that central banks yield will be rendered useless.
Agustin Carstens seems to have realized this, which explains why he has changed his stance. Central bank-backed crypto assets will give the general public access to money that was earlier reserved for private sector lenders.
This is one-way central banks can compete against tech giants such as Facebook and remain in relevance. Otherwise, Agustin Carstens would be without a throne to sit on as his central banking empire will crumble thanks to the onslaught of cryptocurrencies from private players.