The Bank for International Settlements (BIS) released a detailed report this week that laid out their case against cryptocurrencies. The 20+ page report gave a very one-sided view of the global monetary system and painted their member banks’ product, which is fiat currency, in a way that seems to overlook some major issues.
Said simply, the BIS report that slammed cryptos was completely unrealistic and ignores the rapid development that is taking place in the crypto sector. DLT technology is new, and the fact that Bitcoin can’t yet be scaled up to eclipse the modern financial system doesn’t mean that fiat currency is preferable, or that the next generation of cryptos won’t solve all the current bottlenecks.
One of the biggest points that the report made is that neither Bitcoin nor Ethereum could be scaled up to replace central banks’ fiat currency. This is probably true, but it is also basically meaningless.
As the numerous new blockchain startups demonstrate, there is a lot of talent working on how to create blockchain architecture that could be used for a global level DLT settlement system, though they may need a few years to work on it. The global financial system has evolved over centuries, so its replacement may take a few years to develop.
The Value Problem
Another point that the BIS report made is that cryptos are far more volatile than fiat currency. This is another idea that is true at first glance, but when it is examined in any depth, it falls apart. Fiat currency is stable because it is created on a whim and administrated by a cartel. All of the world’s major central banks work with each other and can make the markets move when they choose.
Because fiat currency can be created in unlimited quantities, the central banks can do just about whatever they like.
If the big four (US, UK, EU, and Japan) want to enforce trading ranges in the FOREX markets and remove considerable swings in volatility, they can do it. This isn’t the case with cryptos, and while there are some large holders in the crypto markets, they don’t have to the ability to game the system in the same way central banks do.
The BIS report did manage to describe in detail why fiat currency is vastly superior to cryptos, with statements like this driving home the point, “The tried, trusted and resilient way to provide confidence in money in modern times is the independent central bank.”
They did fail to mention that fiat currency has been an unstable system, central banks are in no way independent, and over the last decade, trillions of dollars have been funneled to the wealthiest people on earth via central bank-led programs.
Despite all the half-truths and obfuscations, the BIS has to concede that blockchain is here to stay. They had this to say about blockchain, though they didn’t use its name, “the underlying technology could have promise in other applications, such as the simplification of administrative processes in the settlement of financial transactions.”
The blockchain is probably the biggest technological breakthrough in data storage since paper, and unfortunately for the central banks, it is coming to the market sooner rather than later. If this report is an example of how the established financial community is dealing with an existential crisis, they could be in for some rough times.
Nicholas Say was born in Ann Arbor, Michigan. He has traveled extensively, lived in Uruguay for many years, and currently resides in the Far East. His writing can be found all over the web, with special emphasis placed on realistic development, and the next generation of human technology.