Cryptocurrencies Could Threaten Financial Stability, Says Head of BIS -- Update

02/06/18 05:15 AM EST
By Tom Fairless 

FRANKFURT--Central banks must be prepared to intervene to stem risks from digital currencies, as Bitcoin has become a "combination of a bubble, a Ponzi scheme and an environmental disaster," central banking official Agustin Carstens said Tuesday.

The warning indicates public authorities are moving toward a crackdown on digital currencies amid concerns they could undermine the broader financial system.

"Cryptocurrencies piggyback on the institutional infrastructure that serves the wider financial system, gaining a semblance of legitimacy from their links to it," said Mr. Carstens, general manager of the Bank for International Settlements, a Basel, Switzerland-based institution that acts as a lender and think tank for central banks.

"There is a strong case for policy intervention," said Mr. Carstens, general manager of the Bank for International Settlements, or BIS, a Switzerland-based institution that acts as a lender and think tank for central banks.

Central banks around the world have stepped up warnings on digital currencies in recent weeks as prices surged to record highs and then tumbled. Bitcoin slid below $6,000 in volatile trade on Tuesday, having lost about two-thirds of its value since topping $19,000 in December, according to CoinDesk. Other digital currencies have also tumbled in recent days.

Mario Draghi, president of the European Central Bank, said Monday that digital currencies should be regarded as "very risky assets," and said the ECB was looking into the potential risks they pose for eurozone banks.

Federal Reserve Governor Randal Quarles, the U.S. central bank's regulation chief, said in November that digital currencies like bitcoin could pose "more serious financial stability issues" if adopted widely.

Mr. Carstens, a former governor of Mexico's central bank, said digital currencies exhibit many of the flaws that historically undermined private currencies and led to economic crises and hyperinflation.

"The current fascination with these cryptocurrencies seems to have more to do with a speculative mania than any use as a form of electronic payment, except for illegal activities," said Mr. Carstens in a speech at Frankfurt's university.

"If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability," Mr. Carstens said.

Central bank experiments also show that the technology behind Bitcoin is very expensive to run and slower and much less efficient to operate than conventional payment and settlement systems, he added.

Write to Tom Fairless at tom.fairless@wsj.com

 

(END) Dow Jones Newswires

February 06, 2018 05:15 ET (10:15 GMT)

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