In a new annual economic report published by the Bank of International Settlements (BIS), the financial institution revealed that approximately 90% of central banks worldwide are investigating the feasibility of adopting central bank digital currencies, or CBDCs.
The BIS report highlighted the ability of current sovereign fiat money to provide (relative) price stability and public oversight while criticizing crypto’s inability to perform “basic fundamental functions of money” and their opacity with regards to accountability to the general public.
However, the report did highlight crypto’s programmable nature as well as the borderless elements of decentralized finance (DeFi) as potential benefits that would make a case for integration into CBDCs. There are currently three live retail CBDCs with 28 pilots. The digital yuan issued by the People’s Bank of China currently holds the dominant position with 261 million users. In addition, over 60 jurisdictions have fast retail payment systems.
In making a case for the use of centralized digital assets, BIS cited recent adverse developments in the DeFi sector. One such example in the report is the implosion of Terra Luna Classic (LUNC) and Terra USD algorithmic stablecoin. Next, BIS went on to highlight the limited scalability of certain blockchains, such as Ethereum (ETH), causing network congestion and thereby sharp increases in transaction fees.
It also raised the question of the feasibility of layer-1 solutions due to the significant fragmentation of such blockchains to address such drawbacks. Finally, the report pointed to a record amount of cryptocurrency hacks in the past year as part of digital assets’ inherent safety risks.