Central Banks and Digital Money: Crypto Going Mainstream?
Central Banks and Digital Money: Crypto Going Mainstream?
A survey report last week from the Bank for International Settlements (BIS), the so-called central bank of central banks, makes for interesting reading. While it is not an approval of cryptocurrency by any means, it does suggest that some forms of digital currency are gaining credence among regulators. Some 66 central banks, representing 90% of the world’s economic output, took part in the survey in 2019.
It’s a long road to hoe, but my colleague Tom Lee maintains that cryptocurrencies suffer a lack of interest from institutions in particular, who are cautious about a (for the most part) unregulated asset class. Ironically more regulation will bring more interest and that could propel cryptocurrencies.
The BIS paper essentially says that one in 10 central banks, covering countries representing more than one-fifth of the world’s population, may give people access to digital money issued by them in the next three years, as these institutions accelerate plans to issue official cryptocurrencies. They are, by definition, not decentralized private crypto currencies, like Bitcoin (BTC), for example.
But it could be used to pay for all sorts of personal items, and it’s no coincidence that developing nations in particular are looking at digital currency—just as many of these countries jumped the telecoms evolution and went straight to cell phones without a complete rollout of land lines.
Moreover, the proportion likely to issue digital money almost doubled when the horizon was stretched to six years, BIS said. This survey shows emerging market economies report stronger motivations and a higher likelihood that they will issue central bank digital currencies (CBDCs). At the same time, so-called cryptocurrencies remain a niche means of payment, BIS wrote.
Additionally, BIS said that “ever more central banks are currently (or will soon be) engaged in CBDC work. Some 80% of central banks (up from 70% in 2018 survey) are engaging in “some sort of work,” with half looking at both wholesale and general purpose CBDCs. Moreover, some 40% of central banks have progressed from conceptual research to experiments, or proofs-of-concept; and another 10% have developed pilot projects.
Note that every central bank that has progressed to development or a pilot project is an emerging markets institution. Still, 10% of central banks say they are likely to issue a general purpose CBDC in the short term (twice as many as last year) and 20% in the medium term.
Still, for private cryptocurrencies, the results are almost exactly the same as 2018’s survey: no central banks reported any significant or wider public use of cryptocurrencies for either domestic or cross-border payments; and the usage of cryptocurrencies is considered either minimal or concentrated in niche groups.
The CME fed futures market, which currently puts the next rate change probability in September, a change from previous timing of December. The U.S. Treasury 10-yr note yield was around 1.69%, down from 1.82% last week.
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