A new report from the Bank for International Settlements (BIS) concludes that crypto’s “structural flaws” make it “unsuitable as the basis for a monetary system.”
The Annual Economic Report 2022 from the BIS, a global organization of 63 leading central banks, goes on to suggest that blockchain’s role in a future monetary system will likely take the form of central bank digital currencies (CBDCs), because “a system grounded in central bank money offers a sounder basis for innovation.”
The report points to Terra’s historic collapse last month and the current bear market as the catalyst for what analysts have labeled the start of a “crypto winter,” but says that focusing on price action alone “diverts attention away from the deeper structural flaws” in crypto that render it unfit for purpose as a monetary system.
Fragmentation flaws
The report says the crypto space has two main flaws: the need for a “nominal anchor” and “fragmentation.”
The need for a “nominal anchor” refers to stablecoins, which peg their value to fiat currencies, like the U.S. Dollar (with varying degrees of success). The report says that the existence of stablecoins “indicates the pervasive need in the crypto sector to piggyback on the credibility provided by the unit of account issued by the central bank.”
The report argues that cryptocurrencies have done little to challenge the hegemony of central banks in providing a unit of account for the economy: “The fact that…