Regulators must be ready to step up and protect consumers, investors and the financial system from risks that are arising amid the growth of cryptocurrencies, says Agustín Carstens, general manager, Bank for International Settlements (BIS).
Carstens called on global regulators to address the risks posed by “the invasive spread” of cryptocurrencies, such as bitcoin, in a speech at Goethe University in Frankfort, Germany on Tuesday.
“The meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust,” he said. “Private digital tokens masquerading as currencies must not subvert this trust.”
Carstens warned that extreme price volatility, high transaction costs and a lack of consumer and investor protection, “make cryptocurrencies unsafe and unsuited” to replace traditional money as a means of payment, a store of value, and a unit of account. Rather, money must be backed by accountable institutions that have the public trust, he argued.
While new technologies have the potential to make payment systems much more efficient, new currencies are not required for that promise to be realized, Carstens said. At the same time, regulators must guard against the use of technological advances to legitimize profits from illegal activities, and risks to financial stability, he said.
“That is clearly the case with bitcoin: while perhaps intended as an alternative payment system with no government involvement, it has become a combination of a bubble, a Ponzi scheme and an environmental disaster,” he said.
“To ensure a level playing field for all participants in financial markets, access to legitimate banking and payment services should be limited to those exchanges and products that meet accepted high standards,” Carstens said. “This means ‘same risk, same regulation’. And no exceptions allowed.”