Cryptocurrency has structural shortcomings that make it unsuitable for the monetary system. Instead, such systems can be built on the digital currencies of central banks (CBDCs), which are digital representatives of funds in these banks. This is stated in a new report of the Bank for International Settlements, writes Coindesk.
The Bank for International Settlements (BIS), an association of the world’s leading central banks, has dedicated a 42-page chapter to the currency system of the future in Annual Economic Report 2022. In this system there will be a place for some basic technical functions of cryptocurrency, such as programmability and tokenization but not for cryptocurrency as such.
“Our broad conclusion is captured in the motto, “Anything that crypto can do”, CBDC can do better”, said the economic adviser and head of the BIS study at a briefing on Monday.
The above chapter will be published today, earlier than the main report. It defines several restrictions on cryptocurrency, including the lack of a stable face value. In monetary policy, this is a variable, such as the currency peg, which is used to control the price level.
Stablecoins, cryptocurrencies pegged to the value of assets such as government currencies, have become an anchor in the crypto world. According to the adviser, stablecoins are trying to use the stability of real money issued by central banks.
Recent collapse of terraUSD has shown how quickly stablecoins can lose that binding and become unstable despite their name. They are not good units of account. Unlike other stablecoins like USDC and USDT, backed by dollar reserves, terraUSD was backed by another cryptocurrency, LUNA.