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BIS head calls central bankers the best source of confidence in money in the digital age

BIS head calls central bankers the best source of confidence in money in the digital age

Central banks as institutions are best suited to provide confidence in money in the digital age. That's what Agustin Carstens, CEO of the Bank for International Settlements (BIS), said, CoinDesk reports.

Speaking at the conference "Data, Digitalization, Decentralized Finance and CBDC: The Future of Banking and Money" at the Goethe University Institute of Law and Finance in Germany, the financier said:

"The soul of money belongs neither to technological giants nor to an anonymous registry. The soul of money is trust.

Central banks are key institutions for trust, he said, and alternatives often end badly.

Carstens noted that private stackablecoins and DeFi services could prove to be "interesting innovations" but without proper oversight could potentially fragment the monetary system.

"It's undesirable to rely solely on private money. Paying with Stablecoin from a big tech company can be convenient. But in doing so, users could hand over the keys to our monetary system to private businesses driven primarily by profits. Such an arrangement could undermine trust," he stressed.

The financier recalled a recent BIS study in which experts concluded that the decentralization of DeFi services is illusory. According to the report, blockchain consensus mechanisms tend to concentrate power, allowing a small number of stakeholders to make important decisions.

"DeFi are subject to the same vulnerabilities that are present in traditional financial services. These include high levels of leverage, skewed liquidity and ties to the formal financial system, which can affect stability more broadly," Carstens said.

He suggested several plausible scenarios for the future of money. In one, a few technology giants would provide financial services for all. In another, a decentralized system could replace people and institutions with "blockchains and algorithms.

Carstens sees a third possibility as building a global monetary and financial system that uses technology for the good of all.

"In the third scenario, old players, large technology companies and new entrants compete in an open marketplace that guarantees interoperability, relying on the public goods of a central bank. End users can interact seamlessly between different providers, both domestically and internationally," the BIS chief believes.

In his view, central banks should work with other government agencies and private stakeholders to make the latest version a reality.

Recall, earlier in BIS came to the conclusion that the effectiveness of the CBDC system requires the cooperation of the public and private sectors.

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