The basis for future innovative monetary systems, CBDC, not cryptocurrencies with systemic flaws. This conclusion was made by the experts of the Bank for International Settlements (BIS) in the “Annual Economic Report”.

Retail #CBDCs can be designed with inclusive features to serve users who do not currently have access to digital payments #BISannualEconReport https://t.co/Qvmq4W2N9h pic.twitter.com/TbrozsIFP4

— Bank for International Settlements (@BIS_org) 26 June 2022

In their view, recent events have revealed a huge gap between the vision of cryptocurrencies and reality. BIS experts noted that the collapse of the TerraUSD stablecoin and its associated LUNA token “highlights the weakness of the system backed by the sale of speculative coins.”

“It is now becoming clear that cryptocurrencies and DeFi have deeper structural limitations that prevent them from achieving the levels of efficiency, stability and integrity required for an adequate monetary system. In particular, there is no nominal anchor that cryptocurrency has tried unsuccessfully to import via stablecoins,” the report says.

BIS experts also noted the fragmentation trend of the crypto industry and the use of centralized intermediaries. It cannot scale without sacrificing security, as evidenced by its “congestions and excessive fees”, experts say.

In their view, the central bank-based monetary system “served society well.”

“Still, digital innovations are pushing the limits of technological possibilities with new demands,” they said.

The challenge, according to BIS experts, is to leverage the useful features of cryptocurrencies, such as programmability, composability, and tokenization, on a more secure basis.

“The monetary system of the future must combine new technological capabilities with, at its core, superior representation of central bank money,” they said.

The future payment system should be based on a “tried-and-true distribution of roles between the central bank that provides the backbone and the private institutions that carry out customer-related activities.”

Central banks will operate wholesale CBDCs based on distributed ledger technology. At the retail or “client” level, BIS experts say digital currencies will enable intermediaries to improve interoperability between different platforms, reduce costs and increase access to financial services.

They recalled that similar interactions using CBDC had been tested in a series of experiments sponsored by the institution. The BIS innovation center implemented the Inthanon-LionRock, Dunbar and Jura projects with the participation of several central banks.

Nine out of ten central banks in the world are reviewing CBDCs, BIS experts have learned.

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