According to Agustin Carstens, the head of the Bank for International Settlements, fiat money has defeated a frequently mentioned use case for some cryptos – a substitute for conventional currencies.
He told on Wednesday that he thinks the battle has been won. Technology alone does not make for reliable money.
Blockchain technology is frequently cited by proponents of cryptocurrencies as a method to address shortcomings in traditional financial systems.
Without paying high transfer fees, borderless payments can be made using bitcoin. According to its whitepaper, bitcoin was marketed from the start of its network in 2008 as a “pure peer-to-peer version of electronic cash [that will] allow online payments to be transmitted directly from one party to another without going through a financial institution].
Those who don’t want to (or can’t) employ third-party middlemen like banks can benefit from the distributed ledger’s immutable and transparent features. But, in order to access a digital wallet, investors must be able to handle the volatility that comes with a developing technology.
Carstens also cited the collapse of cryptocurrency exchange FTX, which US authorities have called one of the “largest financial frauds in American history,” as a reason for people’s continued hesitation to invest in digital assets. Carstens noted that the consequences will likely lead to stronger regulation.
With the market valuation having fallen by two-thirds from its all-time high in November of 2021, the industry was already having a difficult year when FTX filed for bankruptcy in November. But the demise of FTX also led to a crisis of trust among outsiders in the developing market.
Carstens argues that cryptocurrency can only truly exist “under particular conditions” and that the legal, historical infrastructure of central banks is the sole source of significant credibility for money.
