Central Banks Pen Scathing Letter On Cryptocurrencies: Challenges Outweigh Innovation

An association of global central banks expressed doubt to the finance ministers of the world's 20 biggest economies about cryptocurrency's suitability as a financial instrument due to "intrinsic structural defects."

What Happened: The Bank for International Settlements (BIS) wrote a report for an upcoming meeting of G20 finance ministers and central bank governors in Gandhinagar, India. The challenges plaguing crypto, they said, outweigh the potential innovations.

Despite the hype from retail and institutional players, "Cryptocurrency has yet to leverage innovation for the betterment of society," they said.

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Among the criticisms:

• Crypto does not finance tangible economic activity.
• It suffers from structural deficiencies.
• And it is unfit to play a significant role in the financial system.

BIS cites losses from the FTX FTT/USD fiasco, plus the Terra LUNA/USD collapse. There are also too many risks associated with hacks and "rugpulls," as well as scaling issues for blockchains to reach the size necessary for a full-fledged payment system.

According to the report, "overgrown, permissionless blockchains experience congestion."

The G20 members seem to exhibit wariness towards endorsing stablecoins — cryptocurrencies tethered to the value of fiat currencies — especially given the pronounced effect they could have on centralized monetary policy in emerging markets.

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