Digital currency schemes could usurp central banks - BIS

Digital currency schemes could usurp central banks - BIS

The world's central banks could be rendered irrelevant by the wide-scale adoption of digital currency schemes, the Bank for International Settlements has warned.

In a 24-page report produced at the behest of the Committee on Payments and Market Infrastructures, the BIS says that digital currencies running on a decentralised ledger have the potential to usurp the role of central banks in setting monetary policy, disrupt established business models for financial market infrastructures and usher in new economic interactions and linkages.

The report commends the work of the Bank of England and Bank of Canada in exploring the potential for bank-issued crytptocurrency and recommends that central banks continue monitoring and analysing the implications of digital currencies and distributed ledger technology.

States the BIS: "The emergence of distributed ledger technology could present a hypothetical challenge to central banks, not through replacing a central bank with some other kind of central body but mainly because it reduces the functions of a central body and, in an extreme case, may obviate the need for a central body entirely for certain functions."

The BIS acknowledges that such schemes are not widely used or accepted, and they face a series of challenges that could limit their future growth.

"However, some digital currency schemes have demonstrated that their underlying technology could feasibly be used for peer-to-peer transactions in the absence of a trusted third party," notes the report. "Such technology may have potential to improve some aspects of the efficiency of payment services and financial market infrastructures (FMIs) in general. In particular, these improvements might arise in circumstances where intermediation through a central party is not currently cost-effective."

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