New look for CBDCs and crypto market to emerge from turmoil, says senior BIS official

By Marc Jones

LONDON (Reuters) – Crypto markets have not been killed by last year’s turmoil, while the new wave of central bank digital currencies will hit geopolitical limits, the Bank for International Settlements’ new head of innovation has predicted.

The BIS, dubbed the central bank of the world, is standing cryptocurrencies has long been critical of and compared Bitcoin in the past with both a Ponzi scheme and a market bubble.

The collapse of Sam Bankman-Fried’s FTX empire last year, as well as Celcius, Three Arrows Capital and a slew of “stablecoins” made many of his warnings come true, as more than $2 trillion was wiped from the sector’s value.

However, since the beginning of 2023, there has been a recovery of some sort, including a 40% recovery in the price of bitcoin.

“I expect the industry will learn from these mistakes and come up with new things,” Cecilia Skingsley, the new head of the BIS’s Innovation Hub, told Reuters in her first in-depth interview since taking office.

pain in cryptoland-

The former Swedish central banker also said that the troubles didn’t appear to have affected central banks’ plans for potential swaths of nationally-issued digital currencies (CBDCs) in the years to come.

As the umbrella organization for global central banks, the BIS coordinates many of the international experiments centered around CBDCs, which can be built either for public use or just for banks to use behind the scenes of wholesale money markets.

“All I hear is that those who have these projects are pushing them forward,” Skingsley said.

Eleven countries have already adopted a CBDC, while over 100 others, accounting for over 95 percent of global GDP, are exploring it, with some significant milestones expected this year.

China, for example, will expand its digital yuan pilot to most of its 1.4 billion people. The European Central Bank should be given the green light for comprehensive tests. The US Federal Reserve is also conducting some tests, while Australia, Britain, Brazil, India, South Korea and Russia are also making important moves.

This global boost comes as physical cash consumption is declining around the world and authorities are scrambling to fend off threats to their money-printing powers from bitcoin and “big tech” firms.

Sanctions imposed on countries like Russia and Venezuela in recent years have been another driver, including for longtime US allies like Europe, who want to ensure they have an alternative to the networks of Visa, Mastercard and Swift have.

“You have to be resilient enough when it comes to defence, when it comes to food supplies, but it also becomes important when it comes to payment systems,” Skingsley said.

“I can understand why every country asks how resilient we are? Which countries can be our friends, our allies?”

Countries exploring digital currencies-

geopolitical reality

While CBDCs should make currencies more high-tech and make shipping to other countries easier and cheaper, “tectonic plates” would likely form with the new forms of e-money that are only fully interoperable between geopolitically aligned countries, Skingsley said.

“We will never have full connectivity,” Skingsley said, adding that the BIS’s work aims to make CBDCs as versatile as possible.

“There will be too much friction and not all countries in the world will be willing to fully cooperate with all other countries in the world – that is the reality.”

She was also responding to the already low uptake of some CBDCs and some of the skepticism expressed this month by Bank of England governor Andrew Bailey, among others, that CBDCs could be a solution looking for a problem.

“There are some issues here,” Skingsley said. “If you extrapolate the use of cash in many countries, at some point cash will no longer be used as a means of payment.”

“That raises the question of how you maintain policy goals that we think are important – namely, trust in the monetary system.”

(Reporting by Marc Jones, editing by William Maclean)