World central banks launch new campaign against crypto

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China’s recent crackdown on cryptocurrencies has been devastating for those who jumped on the Bitcoin bandwagon this spring after a new buying spree sent digital units soaring to record levels.

And a report released Wednesday by the Bank for International Settlements (BIS), a Swiss-based financial institution often described as “the central bank of central bankers“, may mean that the concerns of digital coin holders are not yet over.

Owned by the Bank of Canada, the Federal Reserve and the like, the internationally renowned financial institution has hinted that it could issue a new challenge, declaring that crypto is against the public good.

Longtime crypto holders are still in the money, and those who have sold near the top of the market are probably happy. But in the markets, for every sale there has to be a buyer and on Tuesday those who supported BTC – as Bitcoin is known to traders – nearly its US $ 63,000, the peak lost more than half of their investments. because it fell below US $ 30,000.

Owners of others, such as Dogecoin, the cryptocurrency that started out as a joke, suffered even more in percentage terms.

Forced sale as markets fall

The damage has been worse for those who bought on margin, the process by which investors borrow from their broker to invest, but are required by lenders to repay part of what they owe if the value of their stake falls. below a certain level. These investors are forced to sell in a declining market unless they can cover their loans with new money.

This means that for every dollar of your own money that you invest, you can buy $ 100 worth of securities. This kind of leverage is incredibly lucrative when the markets go up, but in the recent plunge, margin traders have lost their shirts. Although brokerage firms in Canada do not offer these kinds of margins, in a global market, everyone suffers the consequences.

Despite its latest setbacks, crypto, and especially the most famous example, Bitcoin, has shown that it may be down but not down, bouncing above US $ 34,000 after approaching $ 29,000 Tuesday.

Bitcoin has also had some success. Earlier this month, El Salvador, which already uses the U.S. dollar as its currency, was also the first country to declare cryptocurrency as legal tender.

“The government will guarantee convertibility at the exact dollar value at the time of the transaction,” the country’s president, Nayib Bukele, said after the legislation was passed.

Central bank digital alternative

The announcement came just in time for bitcoin’s latest plunge, sparking jokes that Salvadorans who negotiated $ 60,000 BTC wage deals might have regretted doing so if they did. were paid the day it fell below $ 30,000. One of the issues with Bitcoin as a unit of exchange has always been volatility.

But this week’s BIS report, disarmingly, Central Bank Digital Currencies: An Opportunity for the Monetary System, poses what appears to be a new threat. This not only suggests that central banks can and will begin to issue their own digital coins in direct competition with Bitcoin and its ilk, but they can also take steps to discourage the use of crypto.

“Innovations such as cryptocurrencies, stablecoins, and large-tech walled garden ecosystems all tend to work against the element of public good that underlies the payment system,” said the BIS report in its conclusions. Walled garden systems are a lot like Canadian Tire money – in fact, tokens that you can only spend internally.

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The central bank-issued digital currency, called CBDC for short – an area where China has emerged as a world leader – was first brought up seriously after Facebook offered its own stablecoin, Libra, in 2019. Unlike crypto -currencies, which can rise and fall unpredictably, the value of CBDCs are known. And unlike stablecoins, they can be spent anywhere as legal tender.

As described on Wednesday by BIS research director and Korean economist Hyun Song Shin, digital coins issued by the central bank would have many advantages of crypto without the drawbacks.

Remove intermediaries

They would also eliminate the role of middleman when you transfer money.

“You can pay someone just like you would by handing over money, but do it digitally using your smartphone,” Shin said in a video presentation Tuesday. “CBDCs are a claim on the central bank, which means payment is certain and final without leaving intermediaries to complete the transaction.”

While digital currencies created by central banks around the world have many similarities to traditional cryptos, they have the advantage of being stable and traceable, although some Bitcoin speculators believe this to be a bad thing. (BIS)

“They can also protect privacy while maintaining the integrity of the payment system and law enforcement,” Shin said,

Of course, some of the people who trade or use Bitcoin and other cryptocurrencies might not see these things as benefits. Since digital tokens produce nothing of value, making money in crypto speculation does not depend on a stable price, but on the idea that the sky is the limit and that Bitcoin and its ilk will continue to rise. reach future mountain peaks.

Bitcoin trading, like the Gamestop phenomenon, is now part of a sort of rebel financial movement fueled by Reddit. Market traditionalists scoffed at it, but just this week the Rebels scored yet another victory as Gamestop, a company mainstream traders expected to go bankrupt, managed to launch an IPO of ‘a billion dollars, while the hedge fund that bet against it closed.

Likewise, crushing crypto trading may not be easy. China has shown that by cracking down on bitcoin miners who effectively power the digital coin accounting system and forcing its own banks to stop facilitating the use of crypto, strong government action has the power to slow, or even defeat the use of crypto-currencies. .

The BIS report hints at the pursuit of crypto for its unnecessary energy consumption in a world of climate change. Last month, global banking regulators also recommended restricting the holding of items like bitcoin as capital, thereby discouraging their use in the banking industry.

But if central banks are to retain their exclusive power over money, they may have to do something a little harsher than what is contained in this week’s report. Providing a functional alternative, regardless of its quality, is unlikely to be enough.

Follow Don on Twitter @don_pittis





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