Central Banks Build Confidence, Not Big Tech or “Anonymous Ledgers”

In a speech entitled “Digital currencies and the soul of moneyAgustin Carstens, CEO of the Bank for International Settlements, has slammed private stablecoins and decentralized finance (DeFi), touting central bank-led financial innovation as the best possible path forward for the future of money.

Carstens, who served as Governor of the Bank of Mexico between 2010 and 2017, delivered his speech at the conference “Data, Digitization, the New Finance and Central Bank Digital Currencies: The Future of Banking and Money” at Goethe University Frankfurt.

The economist’s argument revolved around the institutional foundations of money and how, even in the digital age, central banks are still able to inspire trust in money and ensure “an efficient and inclusive financial system for the benefit of all”. According to the BIS boss, the alternative configurations of monetary systems that have emerged over the course of history “often ended badly”.

Central Banks Build Confidence, Not Big Tech or “Anonymous Ledgers”
Central Banks Build Confidence, Not Big Tech or “Anonymous Ledgers”

To advance his point, Carstens discussed three plausible scenarios for financial innovation. Alongside the central bank-led global monetary system, he envisioned a world where technology-driven stablecoins are the dominant form of money and where most financial activity is decentralized and distributed on distributed ledgers.

According to Carstens, the stablecoin landscape is riddled with market power and data concentration in the hands of a few dominant private financiers. National and global monetary systems would become fragmented, while the disintermediation of traditional banks would endanger financial stability.

Regarding DeFi, the BIS chief explained that the reality that DeFi applications offer is at odds with his proclaimed founding principles of disintermediation. Karsten said:

“Until now, the DeFi space has been used primarily for speculative activity. Users invest, borrow, and trade crypto assets in a largely unregulated environment. The lack of controls such as know-your-customer (KYC) rules and anti-money laundering could be an important factor in the growth of DeFi.”

Additionally, 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 economist’s vision of the monetary future, central banks are at the heart of the financial system, facilitating innovations such as the creation of a global network of CBDCs. By not being for-profit, Carstens says central banks would act to further the public interest.

These statements are not surprising when made by the director of what is often referred to as the bank of central banks. As Cointelegraph previously reported, the BIS innovation arm is actively involved in several CBDC trials, including the cross-border settlement initiative being run jointly by the central banks of France and Switzerland.

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