BIS says crypto is a ‘flawed system’ but tokenization could underpin future financial system

The Bank for International Settlements (BIS) has highlighted the “tokenization potential” of cryptocurrencies and DeFi, but ultimately cryptocurrencies are a “flawed system” that cannot be the “future of money.” said it was.

Global watchdog issued a statement in 2023 annual economic report A paper published on June 20 argued that the global financial system was on the brink of the next “great leap”, much like humans moving from gold to paper.

Crypto is Dead, Long Live CBDC

According to the BIS, cryptocurrencies inherently lack the trust that money needs, and only central banks can provide it. The guard dog said:

“Cryptocurrencies are self-referential, have little contact with the real world, and lack the central bank-provided anchor of trust in money.”

The regulator added that stablecoins essentially “imitate central bank money” to fill a “blank of trust” in the industry, but are “not a substitute for the real thing.”

According to the report, the industry-wide high-profile scandal that sparked the recent “Cryptocurrency World Collapse” has proven that cryptocurrencies cannot be the foundation of the global economic system, and central bank digital currencies ( CBDC) are urgently needed.

The Observatory said a financial system built on tokenization requires both wholesale and retail CBDCs. Wholesale CBDCs will essentially play the same role as reserves in the current financial system, while retail CBDCs will act as a digital equivalent of cash that can be used for everyday transactions.

Tokenization is the future

The BIS believes that tokenization can solve many of the problems that exist in the current financial system, such as individually reconciling transactions before final settlement, and its benefits could play an important role in the foundation of the future financial system. said to be high.

Tokenization efforts in the private sector have been frustrating as these projects often create “silos” that disconnect them from the rest of the financial system. According to the report, this shows the private sector’s inability to build the infrastructure for the future financial system.

BIS said:

“The collapse of cryptocurrencies and the slow progress of other tokenization projects highlights important lessons. Successful tokenization depends on the foundation of trust provided by central bank money and a key component of the financial system. It depends on the ability of central banks to connect

The Observatory called on both the public and private sectors to come together and work together to build the financial system of the future.

A BIS post first appeared on CryptoSlate, claiming that cryptocurrencies are a “flawed system” but that tokenization could underpin the future financial system.