Cryptocurrencies and the digital assets ecosystem are often questioned for its long-term credibility and trade functionality. Adding fuel to the fire, a prominent Bitcoin [BTC] critic listed out the risks associated with central banks issuing their own virtual assets, which could result in “huge operational consequences” and undermine monetary policy-making.
Agustin Carstens, the General Manager of the Bank of International Settlements, recently stated that if central banks initiate the launch of their own cryptocurrencies, it would create financial panic among people. The users would transfer their money assets to accounts with monetary authority from established banks, which would undermine the system.
“There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system. Central banks do not put a brake on innovations just for the sake of it. But neither should they speed ahead disregarding all traffic conditions.”
Agustin had previously compared the Bitcoin market to “a bubble, a Ponzi scheme, and an environmental disaster.”
He added that the other potential consequences of using Bitcoin would be its impact on interest rates, which in turn will affect the public’s demand for money, eventually resulting in larger bank balance sheets. This might eventually end up affecting financial market liquidity, he said.
The recent surge in crypto-popularity, hyperinflation of fiat currencies in countries like Venezuela, and the drop of utilization of cash payments in places like Sweden have raised concerns over whether central banks would consider the supplementation of virtual tokens to replace their bank notes.
However, Christine Lagarde, the IMF Managing Director, praised the digital tokens issued by central banks. She stated,
“I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy.”
JP Morgan Chase previously announced the launch of the first stablecoin under the control of a major bank, earlier this year. The coin was, JPM Coin, was designed to settle payments instantaneously between bank’s customers and users.
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