Known as the central bank of the world's central bank, the BIS has long been critical of cryptocurrencies, comparing bitcoin to both a Ponzi scheme and a market bubble in the past.
last year's collapse of Sam Bankman-fried's FTX empire, as well as Celcius, Three Arrows Capital, and a host of 'stablecoins' saw many of his warnings come true when more than $2 trillion of value was wiped out of the sector.
However, since the beginning of 2023, there has been something of a rally, including a 40% recovery in the bitcoin price.
"I suppose the industry will learn from these failures and come up with new things," Cecilia Skingsley, the new head of the BIS's 'Innovation Centre', told Reuters in her first in-depth interview since taking over.
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The former Swedish central banker also said the issues did not appear to have affected central banks' plans for what could be swaths of nationally issued digital currencies (CBDC) in the next years. As the umbrella body of the world central bank, the BIS has been coordinating many of the international experiments around CBDCs, which can be built for public use or just for banks to use behind the scenes in โwholesaleโ money markets.
"All I hear is that those who have these projects are pushing them forward," Skingsley said.
Eleven countries have already launched CBDCs, while more than 100, representing more than 95 percent of global GDP, are now exploring them, with this year expected to see some major milestones.
China, for example, will extend its digital yuan pilot to most of its 1.4 billion people. The European Central Bank should get the go-ahead for large-scale tests. The US Federal Reserve is also doing some testing, while Australia, Britain, Brazil, India, South Korea, and Russia are also taking major steps.
This global boost comes as the use of physical cash falls globally and authorities seek to fend off threats to their money-printing powers from bitcoin and 'Big Tech' companies.
Sanctions imposed on countries like Russia and Venezuela in recent years have been another driving factor, even for longtime US allies like Europe who want to ensure they have an alternative to Visa, Mastercard and Swift networks. .
"You have to be resilient enough when it comes to defense, when it comes to food supply, but it also becomes important when it comes to payment systems," Skinsley said.
"I can understand why any country asks, how resilient are we? Which countries can be our friends, our allies?"
geopolitical reality
While CBDCs should make currencies more technological and easier and cheaper to send to other countries, "tectonic plates" are likely to form with new forms of electronic money that are only fully interoperable between geopolitically aligned countries, he said. Skinsley.
โWe will never have full interconnection,โ Skinsley said, adding that the BIS's work was aimed at making CBDCs as versatile as possible.
"There will be too much friction and not every country in the world will be ready to fully cooperate with every other country in the world. That is the reality."
He also responded to the low uptake of some of the CBDCs already, and to some of the skepticism expressed, including this month by Bank of England director Andrew Bailey, that CBDCs can be a solution to a problem.
"There are some problems here," Skinsley said. "If you extrapolate from the use of cash in many countries, cash will no longer be used as a payment method in the future."
"That opens the question of how to maintain the public policy objectives that we think are important, namely confidence in the monetary system."
