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In preparation for a meeting of the G20 finance ministers and central bank governors this month, the Bank for International Settlements Innovation Hub (BISIH) submitted two reports \u2014 on cryptocurrency and central bank digital currencies (CBDCs) \u2014 on July 11. The reports reached very different conclusions about the related technologies.<\/p>\n
The BISIH report on crypto is the shorter of the two publications at 24 pages. it provided<\/a> a short overview of the crypto ecosystem of cryptocurrencies, stablecoins and decentralized finance (DeFi), followed by a laundry list of \u201c[s]structural flaws and risks.”<\/p>\n The crypto report rehashes some common issues, such as the centralization of much crypto trading, the instability of stablecoins and the purported irreversibility of smart contracts. It raises some relatively little-discussed points, such as the inescapable centralization of DeFi due to the need for an oracle. <\/p>\n Another comparatively rare insight the BISIH crypto report provided was the risk from human nature. Crypto investors, it pointed out, are inclined to chase prices \u2014 that is, buy high and sell low \u2014 just as is often seen in traditional finance. <\/p>\n But the BISIH saw the real risk from crypto as its growing interconnectedness with the real economy. \u201cInstitutional investors and households continue to show interest in crypto despite the events of the past year,\u201d the report said, referring to the recent crypto winter. In addition, increasing tokenization of assets could encourage the growth of the crypto market further, the report claimed, without explaining the mechanism for it. Stablecoins could bring on “cryptoisation” of economies, where cash is squeezed out.<\/p>\n The BISIH, along with the central banks of Germany and the Netherlands, has started<\/a> Project Atlas to visualize cross-border crypto flows, but \u201cfurther steps are needed for a holistic assessment of crypto markets.\u201d The report concluded:<\/p>\n “Crypto’s inherent structural flaws make it unsuitable to play a significant role in the monetary system.” <\/p><\/blockquote>\n The BISIH has implemented 12 CBDC proofs-of-concept or prototypes over the past three years, out of 29 total projects, and has learned valuable lessons, it stated<\/a> in its CBDC report. The report considers the variables of wholesale versus retail CBDCs and their desirability, feasibility and viability. <\/p>\n Related: CBDC ‘human rights’ tracker revealed at Oslo Freedom Forum<\/a><\/em><\/strong><\/p>\n The tone of the report differed markedly from the crypto text:<\/p>\n \u201cBy underpinning the future monetary system, CBDCs would be the foundation upon which further innovations build.\u201d <\/p><\/blockquote>\n The report summarized the mass of findings from all 12 projects and suggested ways the information could be used. It provided grounds for a research gap analysis, first of all. \u201cExperimenting under the BISIH umbrella allows projects to build iteratively on one another,\u201d the report said. <\/p>\n A new #BISInnovationHub<\/a> The report to the G20 explores the key insights and lessons learned from 12 CBDC projects that cover retail and wholesale, both in a domestic and cross-border context. Read more https:\/\/t.co\/kIIotdl1DS<\/a> #G20India<\/a> pic.twitter.com\/mZeOAC2LAE<\/a><\/p>\n \u2014 Bank for International Settlements (@BIS_org) July 11, 2023<\/a><\/p><\/blockquote>\n Also, BISIH projects could encourage a “modular approach,” in which components such as payments, foreign exchange and compliance could be “decoupled” from projects for more general use. More CBDC projects are coming, the BIS promised.<\/p>\n\n