The Bank for International Settlements (BIS) has advised central banks to think twice before issuing their own cryptocurrency, due to the potential risks and spillovers.
In a report issued by the BIS on Monday, Mar 12, Jacueline Loh, chair of the BIS markets committee, said there are "risks we do not fully understand at this point". She added that "any step towards a possible launch of a central bank digital currency (CBDC) should be subject to careful and thorough consideration."
Loh is also the deputy managing director of the Monetary Authority of Singapore.
The report studied the possible impact of a "wholesale" digital currency only for a limited audience like banks, and a "retail" version for all.
Chairman of the BIS committee on payments and market infrastructure, Benoit Coeure, noted that there was more caution with the "uncharted waters" of a retail CBDC, Reuters said in a report. This is because such a currency could impact deposits, which is a major source of funding for commercial banks, thereby carrying implications for financial stability in times of market stress.
Moreover, there was not yet any evidence that digital currencies would allow central banks to implement monetary policy better than with the existing tools that are in use.
On the other hand, blockchain – the distributed ledger technology (DLT) that underpins cryptocurrencies – has the potential to make settling trades of securities and forex more efficient. "DLT is where the action is," said Coeure.
There is currently no bank that has issued a digital currency, though the Riksbank in Sweden is exploring the use of a retail e-krona for smaller transactions.