The Bank for International Settlements has firmly thrown its weight behind the development of central bank digital currencies (CBDC), billing the monetary shift as a public good against the twin evils of Big Tech and bitcoin.Central bank interest in CBDCs comes at a critical time. Several recent developments have placed a number of potential innovations involving digital currencies high on the agenda. The first of these is the growing attention received by bitcoin and other cryptocurrencies; the second is the debate on stablecoins; and the third is the entry of large technology firms into payment services and financial services more generally.
Writing in the BIS' annual economic report, head of research and economic advisor Hyun Song Shin, dismisses the role of cryptocurrencies: "By now, it is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes. Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint."
He describes stablecoins as "an appendage to the conventional monetary system and not a game changer", noting also that they are only as good as their governance arrangements and have the potential to fragment the liquidity of the monetary system.
On Big Tech, Song Shin says the network effects inherent in their platforms impels the market for payments towards further concentration.
"Authorities have recently addressed concerns about anti-competitive practices that exclude competitors in associated digital services such as e-commerce and social media," he says. "This concentration of market power is a reason why authorities in some economies are increasingly turning to an entity-based approach to regulating Big Techs, as a complement to the existing activities-based approach."
By way of contrast, Song Shin says CBDCs w...