In a speech delivered in Basel, Switzerland, Agustín Carstens, the chief of the Bank for International Settlements (BIS), emphasised the central role of central bank digital currencies (CBDCs) in shaping the future financial landscape. Carstens underscored the potential of CBDCs to bring innovation and meet public expectations, positioning them as major players in the cryptocurrency domain.
Carstens suggested that CBDCs could facilitate efficient and sophisticated financial services, emphasising the responsibility of central banks to lead digital innovation for the public good. Drawing attention to past vulnerabilities in poorly designed financial systems within the crypto universe, he emphasised the necessity for robust security measures in CBDCs.
Carstens urged central banks to lead the digital revolution during a conference in Basel. Emphasising central bank digital currencies (CBDCs) as pivotal, Carstens outlined potential threats, including varying technological infrastructures and cyber risks. He highlighted the need for design flexibility, particularly in addressing privacy concerns for retail CBDCs.
In concluding his speech, Carstens acknowledged the “formidable” security challenges facing CBDCs but deemed them unavoidable for central banks to fulfil their mandate.
Carstens discussed the diverse technological frameworks under consideration for CBDC initiatives. He highlighted the challenge of maintaining design flexibility, especially concerning public acceptance of retail CBDCs, and stressed the importance of privacy.
Despite Carstens’ optimism, concerns from privacy advocates and U.S. politicians persist. Worries about government surveillance, control, and potential financial exclusion accompany fears of cybersecurity threats. Critics argue that CBDCs could compromise financial privacy by enabling comprehensive transaction tracking.
Carstens pledged BIS support for central banks venturing into digital realms, particularly through the BIS Innovation Hub and Cyber Resilience Coordination Centre. The Innovation Hub has actively collaborated on various digital currency projects globally, reinforcing its commitment to fostering innovation and addressing challenges in the financial sector.
While acknowledging challenges such as cybersecurity and the emergence of new technologies like quantum computing, Carstens stressed the importance of security in CBDCs. He highlighted the need for a balance between security and privacy, particularly in retail CBDCs, to ensure public acceptance. The BIS Innovation Hub has actively explored projects integrating quantum-resistant cryptography into CBDC systems and enhancing offline resilience.
The Innovation Hub has also been actively involved in various digital currency projects, collaborating with central banks worldwide and contributing to the development of innovative financial solutions.
While recognizing the significance of CBDCs, Carstens acknowledged the limited role of central banks, foreseeing most customer-facing services remaining in the private sector. He stressed the necessity of cyber resilience in the private sector to maintain trust in the overall financial system, emphasising collaboration between public and private sectors to manage cyber threats.
The BIS also raised concerns about stablecoins in a recent report, questioning their ability to consistently maintain value in parity with underlying assets. Stablecoins, including Pax Gold, USD Coin (USDC), and Tether (USDT), faced scrutiny for their inability to reliably hold value throughout the trading day, challenging their reliability as a digital currency.
The report highlighted the collapse of Terra’s UST as a significant event affecting the cryptocurrency market, emphasising the need for stablecoins to maintain value for effective use as a medium of exchange. Concerns about stability arise from over 600 instances of fiat-backed stablecoins depegging from their associated assets within a year, according to Moody’s Analytics.
The BIS report pinpointed the lack of transparency surrounding stablecoins’ reserves as a critical issue. It emphasised that without adequate transparency and regulation, the credibility of stablecoins and their ability to maintain pegs could be compromised, posing challenges to their viability as a secure digital currency.