Creation of digital currencies carries ‘significant fraud risks’: report
ZURICH: The creation of digital currencies, like bitcoin, by central banks could revolutionise the global financial system but also carries significant fraud risks, the Bank for International Settlements warned on Monday.
In a report, the Bank for International Settlements (BIS) said the launch of crypto currencies by central banks had potential benefits but could also have a detrimental impact, including exposing banking centres to a greater risk of cyber attacks.
“The potential effect of fraud could be more significant because of the ease with which large amounts could be transferred electronically,” states the report by the BIS, which is often described as the central bank of central banks.
The report calls for “robust mitigation methods” before central bankers consider offering official digital currencies.
“Central bank digital currencies could help make settling trades of securities and foreign exchange more efficient in the future,” said Benoit Coeure, chair of the Committee on Payments and Market Infrastructures (CPMI), part of BIS.
“But more work and experimentation would be needed to explore these benefits,” he added.
The report says digital currencies could change the way money is offered, strengthen payment systems, and be a reliable method to carry out transactions if the use of cash decreases.
But it warns that the currencies carry significant risks and are too volatile at the moment to be considered as a common means for payment or savings.
“General purpose central bank digital currencies could revolutionise the way money is provided and the role of central banks in the financial system,” said Coeure.
“But these are uncharted waters, with potential risks. This report is a starting point for further discussion and research and will help countries make choices given their own circumstances.”
The report was released ahead of the G20 summit in Buenos Aires on March 19-20, where crypto-currencies will be one of the major themes addressed.
Sweden’s Riksbank, the world’s oldest central bank, is one of a handful of institutions investigating the possible launch of its own digital currency; in its case a an “e-krona”.
It has considered the move due to a decline in the use of cash in Sweden.
However, in many countries the use of cash has continued to grow despite a big rise in the use of bank cards for transactions, according to a study also published by the BIS.
Last month US regulators joined a growing chorus of officials saying they may need new powers to regulate cryptocurrencies.