Publication of the BIS report complies with a crackdown by China on the cryptocurrency business as it attempts to limit risks with customers piling.
As it would no longer be possible for depositors to avoid negative interest rates, A cryptocurrency could if it were to replace money, eliminate the constraint on monetary policy, BIS said.
BIS said that the question of whether or not a bank should offer a alternative to money was pressing in a country like Sweden, where money use has declined over the past decade.
BIS concluded that central banks would have to decide whether issuing retail or wholesale bank cryptocurrencies made sense.
“In making this decision, central banks will have to consider not just customer preferences for privacy and possible efficiency gains — in terms of payments, clearing and settlement — but also the dangers it might entail for the financial system and the broader market, as well as any implications for monetary policy,” BIS said.
“Some of the dangers are currently hard to assess,” it said, adding that very little was understood about the resilience such currencies would have the ability to show to cyber-attacks, for example.
Blockchain technology empowers payments to be made using decentralized cryptocurrencies like bitcoin, by means of a ledger that settles transactions in a few minutes, records and verifies.
Released at Sun, 17 Sep 2017 16:09:39 +0000
What is distinctive about a fundamental bank-issued cryptocurrency – instead of just electronic money – would be that this could be exchanged “directly between the payer and the payee with no need for central intermediary”, by means of blockchain technology, BIS said in its latest Quarterly Review.
“Most of the alleged benefits of retail central bank cryptocurrencies can be achieved by giving the public access to accounts in the central bank, something that’s been technically feasible for quite a long time but which central banks have largely stayed away from,” it said.
Central banks use money – gold now backs only a percentage of the assets – but this is exchanged in a fashion.
On the side, a central cryptocurrency’s usefulness depended on whether it may reduce settlement times and improve efficiency, BIS said. But would depend on the successful resolution of a number of issues that are technical and that had yet to be proven.
RETAIL OR WHOLESALE?
BIS reasoned that the nature of the technology meant that a cryptocurrency for customers could enable the anonymity that cash provides. But if that weren’t seen as significant it was unclear what benefits it might provide.
The report explores two potentially forms of fundamental bank-issued cryptocurrency: a consumer-facing money for use in retail trades, and a wholesale one that would be used by institutions as a “token” money for digitally settling trades.