Agustín Carstens, the general manager of Bank of International Settlements (BIS), has criticized private stablecoins and decentralized finance (DeFi), arguing that central bank-led innovations are the best positioned to shape the future of fiat.
The top anti-crypto banker, who served as governor of the Bank of Mexico between 2010 and 2017, made his sentiments at “Data, Digitalization, the New Finance and Central Bank Digital Currencies: The Future of Banking and Money” conference held at Goethe University in Frankfurt, Germany.
In a speech entitled “Digital Currencies and the Soul of Money,” Carstens explained the institutional foundation of money, touting that Central banks remain in a position to provide trust in fiat currency and ensure an efficient and inclusive financial system. According to the BIS’ top official, all alternative finance systems have ended up collapsing throughout history.
To advance his point, Carstens outlined perfect scenarios of future financial innovations. He envisioned a scenario where global monetary systems would host big tech-powered stablecoin, explaining that most financial activities are decentralized and run on distributed ledgers.
However, Carstens explained that dollar-pegged assets are currently at the hands of few dominant private money issuers, urging the National and global monetary system to become fragmented. He argues that further disintermediation of incumbents’ banks threatens financial stability.
While commenting about decentralized finance (DeFi) developments, the BIS boss claimed:
“To date, the DeFi space has been used primarily for speculative activities. Users invest, borrow and trade crypto assets in a largely unregulated environment. The absence of controls such as Know Your Customer (KYC) and Anti-Money Laundering rules might well be one important factor in DeFi’s growth.”
Carstens reiterated recent BIS research claims stating that “there is a lot of centralization in DeFi,” citing scalability issues and liquidity mismatches as existing challenges facing the decentralized finance ecosystem.
Before summarizing, Carstens outlined the vision of monetary systems. He stated that central banks remain the core of the financial system facilitating innovations such as the global network of CBDCs. According to Carstens, central banks are focused on the interests of the public since they are not profit-driven.
Nonetheless, BIS’ recent sentiments did not appear as a surprise since the BIS is actively engaging in several CBDC trials, including the cross-border settlement initiative jointly run by monetary authorities of France and Switzerland.