Agustin Carstens, general manager of the Bank for International Settlements (BIS), questions the efficiency of cryptocurrencies as he labels them as ‘a bubble, Ponzi scheme and an environmental disaster’. The cryptocurrency market has seen a drop of over $550 billion in just under a month, while the most popular of them all, the Bitcoin, has had its market capitalization fallen by about $230 billion since its all-time high hit in December 2017.
During his speech at the Goethe University in Frankfurt, Mr Carstens raised his concerns as he warned, if the authorities did not act ‘pre-emptively’, ”cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability”.
As the former head of Mexico’s central bank, Carstens said: “The volatility of bitcoin renders it a poor means of payment and a crazy way to store value.” He further added that the current fascination with cryptocurrencies “seems to have more to do with speculative mania than any use as a form of electronic
payment, except for illegal activities.” In addition to questioning the legality of bitcoins, running on blockchain, or DLT (Distributed Ledger Technology), Mr Carstens puts into question their efficiency, as he admits that “In practice, central bank experiments show that DLT-based systems are very expensive to run and slower and much less efficient to operate than conventional payment and settlement systems”.
With countries like South Korea and China against Bitcoin, Carstens added that “authorities are edging closer and closer to clamping down to contain the risks related to cryptocurrencies,” he said, stating that it was “alarming that some banks have advertised ‘bitcoin ATMs’ where you can buy or sell bitcoins”.
The Bank for International Settlements, also known as the ‘bank for central banks’ as it is where the central banks hold accounts, is the oldest global financial institution. And as the bigwig, Mr Carstens raises his concern about authorities being more careful to protect consumers especially against money laundering and tax frauds which may be facilitated by the extensive, and yet risky use of cryptocurrencies.