Just a few months ago, Augustín Carstens, the general manager for the Bank for International Settlements (BIS), the so-called central bank for central banks, said his organization saw no value in the potential of central-bank-issued digital currencies. Well, he’s apparently had a change of heart, and the entrance of Facebook and other “big techs” into financial services appears to be the reason.
The news: Carstens told the Financial Times that the BIS is supporting the “many” central banks currently developing or researching digital currencies. “And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies,” he said.
The context: Many other central bankers have dismissed cryptocurrencies like Bitcoin, which tend to be volatile and whose most popular use has been speculation. But Facebook’s proposed digital currency, Libra, will be backed by fiat money and designed to maintain a stable value.
That, and Facebook’s massive global reach, could help it gain traction. Facebook is also not the only big technology company making a foray into financial services. In its new annual report, the BIS also mentions Alibaba, Amazon, Google, and Tencent. The report warns that “big techs have the potential to become dominant” in this area thanks to network effects.
Uncharted territory: Carstens has warned that central bank digital currencies would have a “major impact” on the financial system, beginning with the fact that it may force central banks to serve retail customers. Traditionally, central banks hold accounts only for commercial banks.
The potential implications of such a change for the stability of the global financial system aren’t entirely clear, and Carstens has questioned (PDF) the value of central banks’ venturing into such uncharted territory. If Facebook and big tech companies get their way, however they may have to.
At the very least, the BIS concludes in its new report, new “comprehensive” public policy is needed to “respond to big techs’ entry into financial services so as to benefit from the gains while limiting the risks.”
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