BIS Pushing for Bank-Backed Crypto, How Will Bitcoin React?
Central Bank-Backed Crypto?
Bitcoin — and other early crypto assets by extension — were bred in the aftermath of the collapse of the U.S. economy in 2008. Known as the “Great Recession“, the market disaster saw many lose their life savings, and subsequently their faith in traditional finance, hence the whole “Occupy Wall Street” movement. Indeed, many historians of the cryptocurrency space have referred to Bitcoin creator Satoshi Nakamoto’s seeming mistrust for centralized institutions of finance.
Now though, it seems that digital assets will become the one that they were created to destroy. Speaking with the Financial Times, Agustín Carstens, the Mexican economist that manages the Bank of International Settlements (BIS) — a Switzerland-based entity that is known as the “central bankers’ bank”.
In the interview, Carstens, who has been a staunch Bitcoin critic over his tenure, claimed that central bank digital currencies (CBDCs) could gain traction. “Many central banks are working on it; we are working on it, supporting them,” Carstens told the reporter, throwing his weight behind projects.
As to why he is doing this, many suggest that this will benefit finance as a whole, and thus society. Last year, Stanley Yong, the now-departed global lead for CBDC solutions at the blockchain-friendly IBM, suggested that government-back cryptocurrencies could help mitigate the risks that led to the Great Recession. Indeed, such fintech projects reduce inefficiencies, foster transparency, and lower the barriers to entry for mom & pop investors.
Carstens and Co. may have an alternative purpose for this push, however. Ever since regulators and central banks have begun to speak out against this asset class, many in the crypto community have claimed that they’re trying to stamp out something they’re afraid of.
But, others have argued that a world where central bank digital currencies are commonplace may actually be an environment where Bitcoin can boom. Here’s why.
Firstly, it’s important to bifurcate assets like Bitcoin and Ethereum, and a digital U.S. dollar, for instance.
The latter will force a majority of society to forfeit their privacy, because once digital currencies become commonly used, exploitative technologies will be able to track every bit and byte of data. You already see this in China, where the users of WeChat Pay & AliPay are victims to the shortcomings of governmental oversight. Through their system, payments can be censored, Beijing can monitor citizens, and, worse yet, it only works with Chinese Yuan. When similar ecosystems inevitably find themselves in Western economies, some say that the level of financial privacy enabled via cash won’t be upheld. As Arthur Hayes of crypto giant BitMEX once wrote:
“The only place left in the system for inefficient or corruptible humans to participate will be at the apex of the network, where the authorities can issue credit directly to people, tax every transaction immediately, and determine who can and can’t be part of the network. In theory, your entire financial existence can be governed this way.”
But that’s where Bitcoin and other decentralized crypto assets come in. You see, the leading cryptocurrency can fill the privacy gap, as its pseudonymous address system, coupled with fledgling privacy protocols, will make it a great alternative to the centralized e-money that is undoubtedly in the works.
In this sense, BTC could find a long-term value proposition, especially if individuals begin to wake up to the reality of financial privacy in today’s world.