A senior executive at the Bank for International Settlements has delivered a scathing attack on bitcoin, deriding the virtual asset as a ponzi scheme and environmental disaster, and calling on central banks to act against the "invasive" spread of cryptcurrencies.
In a lecture "Money in the digital age: what role for central banks?", BIS general manager Agustin Carstens pulled no punches, calling on financial authorities to ensure that cryptocurrencies do not become entrenched and pose a risk to financial stability.
"The meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust," said Carstens. "Private digital tokens masquerading as currencies must not subvert this trust."
New technologies hold great promise, for example in making payment systems more efficient. But new currencies are not required for that promise to be realised, he said. Authorities have a duty to make sure technological advances are not used to legitimise the profits from illegal activities, and to educate and protect investors and consumers, Carstens added.
"Novel technology is not the same as better technology or better economics," he pointed out. "That is clearly the case with Bitcoin: while perhaps intended as an alternative payment system with no government involvement, it has become a combination of a bubble, a Ponzi scheme and an environmental disaster."
Large price swings, high transaction costs and a lack of consumer and investor protection make cryptocurrencies unsafe and unsuited to fill money's role as a shared means of payment, store of value and unit of account, he said.
He called on central banks and financial authorities to pay particular attention to the ties linking cryptocurrencies to real currencies, and ensure they do not become "parasites" on the institutional infrastructure of the wider financial system.
To ensure a level playing field for all participants in financial markets, Carstens believes access to legitimate banking and payment services should be limited to those exchanges and products that meet accepted high standards.
"This means 'same risk, same regulation'. And no exceptions allowed," he said.