Bank of International Settlements Chief Reverses Stance On Crypto (#GotBitcoin?)
The head of the Bank of International Settlements (BIS) has appeared to U-turn on issuing digital currencies after a fresh interview with the Financial Times on June 30. Bank of International Settlements Chief Reverses Stance On Crypto (#GotBitcoin?)
Speaking to the publication, BIS chief Augustin Carstens actively endorsed the creation and issuance of digital versions of national fiat currencies.
“Many central banks are working on it; we are working on it, supporting them,” he said.
“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.”
The comments struck a curious note with many, coming just months after Carstens emphatically advised against issuing such digital currencies. In a speech in March, he listed various risks for banks considering doing so, arguing innovation should not come too fast.
In addition, both the BIS and Carstens himself are outspoken critics of decentralized cryptocurrencies such as bitcoin (BTC).
Last year, he described bitcoin as lacking the ability to ever function as money and directed young people to “stop trying to create money.”
“…If you look at them closely, cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster – the latter because of the high energy consumption needed to run the infrastructure for these cryptocurrencies,” he said in July.
More recently, the BIS has come out critical about Facebook’s new Libra cryptocurrency protocol, similarly due to the fact it resembles money beyond the control of a government.
Banker Who Called Bitcoin ‘Evil Spawn’ Heads BIS Digital Currency Hub
A former European Central Bank board member will chair a new arm of the Bank of International Settlements (BIS) focusing on digital currencies and financial innovation.
In a press release on Nov. 11, the BIS confirmed Benoît Cœuré would begin chairing the Innovation Hub from January 15, 2020.
BIS Eyes Impact Of “Critical Trends”
“The Hub’s mandate is to identify, and develop in-depth insights into critical trends in technology affecting central banking; develop public goods in the technology space geared towards improving the functioning of the global financial system; and serve as a focal point for a network of central bank experts on innovation,” the release explains.
Cœuré has already presided over a dedicated working group studying stablecoins.
Both the BIS and its chairman Agustín Carstens, although publicly critical of cryptocurrencies such as Bitcoin (BTC), face a rapidly evolving financial environment. China’s central bank, the People’s Bank of China (PBoC) — one of its members — could soon become the world’s first major economy to issue its own digital currency.
“I look forward to bringing my expertise to the global central banking community at this time of rapid technological change. We must make the best use of innovation to support financial stability and promote financial inclusion.”
No Mention Of “Evil Spawn” Bitcoin
The Hub will operate in Hong Kong and Singapore, in addition to the BIS’ home of Switzerland.
As Cointelegraph reported, the BIS agreed to partner with the Swiss National Bank (SNB) at the Hub in early October.
“The SNB has for some time been closely following the digitalization of the financial sector and technological innovations in the areas covered by its mandate,” Thomas J. Jordan, Chairman of the Governing Board of the SNB, said at the time.
Last year, Cœuré himself described Bitcoin as the “evil spawn of the financial crisis.”
BIS Chief Blasts Bitcoin’s Viability, Prompting Blowback From Advocates
Bitcoin maximalists cried foul at the central banker’s prognostications.
The chief banker at the bank for central banks, Agustín Carstens, cast doubt on bitcoin’s long-term viability Wednesday, saying it was only a matter of time before a 51% attack brings down the world’s original cryptocurrency.
Carstens’ comments, which he delivered to the Hoover Institute, underscored his belief that bitcoin fails as a currency, a medium of exchange and a value storage mechanism, working only as a “speculative asset” and seldom as money.
He Also Issued A Dire Warning To Would-Be Bitcoin Investors: The Center Cannot Hold:
“Above all, investors must be cognizant that Bitcoin may well break down altogether. Scarcity and cryptography alone do not suffice to guarantee exchange,” he said.
Carstens then levied attacks against the attributes that have kept bitcoin running. He pointed out the “sad side effect” of bitcoin’s monstrous electricity dependence, which he said is as high as Switzerland’s where the Carsten’s organization, the Bank for International Settlements, is based. Bitcoin’s proof-of-work mechanism currently burns through reams of energy.
Carstens reserved particular bombast for what he framed as the inevitable systems failure hard-coded into bitcoin’s 21 million issuance cap. Fewer coins getting minted means fewer miners processing transactions, he said, and confirmation wait times will go up. So too will bitcoin’s vulnerability to a “majority attack.”
“So, clearly, if digital money is to exist, the central bank must play a pivotal role, guaranteeing the stability of value, ensuring the elasticity of the aggregate supply of such money, and overseeing the overall security of the system,” he said.
Bitcoiners were merciless in their rebuttal.
Jameson Lopp, chief technical officer at bitcoin storage startup Casa told CoinDesk Carstens’ arguemnt fails to stand up to bitcoin’s technical realities.
“Bitcoin becoming attackable like other networks is not likely, because it would still require a large upfront capital expense for someone to acquire the appropriate hardware. This would only make sense in a world where another SHA256 secured network came along and became far more valuable to mine than Bitcoin,” he wrote in an email.
Castle Island Ventures partner Nic Carter issued CoinDesk a point-by-point takedown of Carstens arguments, asserting that volatility does not mean something cannot be money, and that it doesn’t matter one way or another if bitcoin is money, because it is “a means to store value over time and space,” a job that Carter said bitcoin does better than gold.
Carter also said Bitcoin network’s energy dependence is a function of price and issuance, not security or necessity.
“Regardless, the energy cost is well worth paying, because the existence of a non-state monetary commodity is something that the world finds valuable,” Carter said.
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