In a speech entitled "Digital currencies and the soul of money”, Agustin Carstens, CEO of the Bank for International Settlements, criticized private stablecoins and decentralized finance (DeFi), touting central bank-led financial innovation as the best possible path to the future of money.
Carstens, who served as Governor of the Bank of Mexico between 2010 and 2017, delivered his comments at the conference on "Data, Digitization, the New Finance and Digital Currencies of Central Banks: The Future of Banking and Money" at the Goethe University in Frankfurt.
The economist's argument revolved around the institutional foundations of money and how, even in the digital age, central banks remain in a position to provide confidence in money and guarantee "an efficient and inclusive financial system for the benefit of all." The alternative designs of monetary systems that have emerged throughout history, according to the senior BIS official, "have often ended badly."
To further his point, Carstens discussed three plausible scenarios of financial innovation. In addition to the global monetary system led by central banks, he envisioned a world where big tech-powered stablecoins are the dominant form of money, and one where most financial activity is decentralized and runs on distributed ledgers.
The stablecoin landscape, Carstens argued, is fraught with market power and data concentration in the hands of a few dominant private money issuers. National and global monetary systems would fragment, while the disintermediation of established banks would threaten financial stability.
Speaking of DeFi, the BIS chief stated that the reality offered by DeFi applications is at odds with its proclaimed core principles of disintermediation. carsten said:
To date, the DeFi space has been used primarily for speculative activities. Users invest, borrow and trade crypto assets in a largely unregulated environment. The absence of controls like know your customer (KYC) and anti-money laundering rules could well be a major factor in the growth of DeFi.
Also, echoing Recent claims by BIS researchers, Carstens stated that “there is a lot of centralization in DeFi.” He also cited scalability issues and liquidity mismatches as problematic aspects of decentralized finance.
In the vision of the monetary future that the economist extolled, central banks are at the center of the financial system, facilitating innovation such as the construction of a global network of CBDCs. Because they are not motivated by profit, central banks would act to further the interests of the public, according to Carstens.
These statements are not surprising when expressed by a CEO of an institution often called a bank for central banks. As Cointelegraph previously reported, the innovation arm of the BIS is actively involved in various CBDC trials, including the cross-border settlement initiative. jointly managed by the central banks of France and Switzerland.
