In a new annual economic report published by the Bank of International Settlements (BIS), the financial institution revealed that nearly 90% of central banks worldwide are examining the feasibility of adopting central bank digital currencies, or CBDCs.
The BIS report criticized crypto’s inability to perform “the basic fundamental functions of money” and their ambiguity with respect to accountability to the general public on (relative) price stability and the ability of current sovereign legal money to provide public oversight. Cast light on.
However, the report highlighted the programmable nature of crypto as well as the borderless elements of decentralized finance (DeFi) as potential benefits that would make a case for integration into a CBDC. There are currently three live retail CBDCs with 28 pilots. The digital yuan issued by the People’s Bank of China currently holds the dominant position with 261 million users. In addition, there are faster retail payment systems in more than 60 jurisdictions.
In the case of the use of centralized digital assets, the BIS cited recent unfavorable developments in the DeFi sector. One such example in the report is the explosion of Terra (Luna) – now renamed Terra Classic (LUNC) – and the Terra USD algorithmic stablecoin. Subsequently, the BIS highlighted the limited scalability of some blockchains such as Ethereum (ETH), leading to network congestion and thus a sharp increase in transaction fees.
It also questioned the feasibility of layer-1 solutions to address such shortcomings, given the significant fragmentation of such blockchains. Finally, the report pointed to a record amount of cryptocurrency hacks over the past year as part of the security risks inherent to the digital asset.