Banking

Bitcoin ‘might break down altogether,’ BIS head Carstens warns

Bitcoin is inherently risky and only central banks should issue digital currencies, according to the Bank for International Settlements.

“Investors must be cognizant that Bitcoin may well break down altogether,” because the system becomes vulnerable to majority attacks as it gets close to its maximum supply of 21 million coins, BIS General Manager Agustin Carstens said in a speech for the Hoover Institution on Wednesday.

Agustin Carstens

Simon Dawson/Bloomberg

Carstens, who runs the Basel-based central bank for central banks, has often been critical of Bitcoin, which surged 300% in 2020.

The trouble with stablecoins, such as the one initially proposed by Facebook Inc. and backed by traditional currencies, is that a private entity is responsible for maintaining the asset backing, raising governance issues, he said.

Central banks around the world are, however, testing the use of digital currencies, spurred by advances in technology and the shift to electronic payments that’s been accelerated by the pandemic. The BIS has set up research hubs to look into the matter.

“Sound money is central to our market economy, and it is central banks that are uniquely placed to provide this,” Carstens said. “If digital currencies are needed, central banks should be the ones to issue them.”



 

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