Cryptocurrencies like Bitcoin are not money, they are a bubble, warned the Bank of International Settlement (BIS) General manager Agustín Carstens. In an interview with Swiss Basler Zeitung that BIS published on July 4, Carstens elaborated that digital coins are assets, not currencies, as they do not fulfill the three characteristics of money: to be a good unit of account, to be stable and to be suitable as a store of value.
While acknowledging that blockchain has useful applications in a variety of industries, he warned that “producing money is not one of them”.
“But if you look at them closely, cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster - the latter because of the high energy consumption needed to run the infrastructure for these cryptocurrencies,” Carstens explained.
Carstens, who is a former finance minister and central bank governor from Mexico, joined BIS at the end of 2017. In the interview, the General manager called on young people not to try to “create money”.
“Those who have the biggest incentive in the system of these so-called cryptocurrencies are those who produce the assets - the miners. By producing "money", they wish to make a profit, and in return they deliver, as it were, the infrastructure that keeps cryptocurrencies going. This incentive, however, is not compatible with maximising the usefulness of money,” Carstens said.
As more people become involved in the crypto market, the potential for harm has increased, and international institutions should work to resolve misinterpretations about the nature of cryptocurrency, Carstens outlined.
In June BIS, which is an organization comprised of 60 central banks, published a report on cryptocurrencies. According to the analysis, It is hard for cryptocurrencies to replace fiat money because the underlying blockchain technology limits their capabilities. This makes them unstable, not scalable, subject to a variety of manipulations and inefficient in terms of electricity consumption.