The world’s central banks can’t 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.
“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 makes sense in their own context.”
In making these decisions, institutions will need to take into account of not only privacy issues and efficiency gains in payment systems, but also potential economic, financial and monetary policy repercussions, according to the BIS.
“In less than a decade, bitcoin has gone from being an obscure curiosity to a household name,” it 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.”
Read more about central banks’ digital currency efforts
The analysis came at the end of a rough week for digital currencies, with JPMorgan Chase & Co. 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, which promises to speed up clearing and settlements. At the Bank of England, Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance.
To better understand the system, the Dutch central bank has created its own cryptocurrency, albeit for internal use only. U.S. officials are exploring the matter too, though in ...