BIS: 90% of central banks are studying the usefulness of CBDCs

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In a new annual economic report released by the Bank for International Settlements (BIS), the financial institution revealed that approximately 90% of central banks around the world are exploring the feasibility of adopting central bank digital currencies, or CBDCs.

The BIS report highlighted the ability of today’s sovereign fiat currency to provide (relative) price stability and public oversight while criticizing crypto’s inability to perform “basic fundamental functions of money” and their opacity regarding accountability to the general public.

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However, the report highlighted the programmable nature of crypto as well as the borderless elements of decentralized finance (DeFi) as potential benefits that would warrant 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. Additionally, more than 60 jurisdictions have fast retail payment systems.

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In arguing for the use of centralized digital assets, the BIS cited recent adverse developments in the DeFi sector. One such example in the report is the implosion of Terra (LUNA) – now renamed Terra Classic (LUC) – and the algorithmic stablecoin Terra USD. Next, BIS highlighted the limited scalability of some blockchains, such as Ethereum (ETH), causing network congestion and therefore a sharp increase in transaction fees.

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This also raised the question of the feasibility of Layer 1 solutions due to the high fragmentation of these blockchains to address these drawbacks. Finally, the report highlighted a record number of cryptocurrency hacks over the past year as part of the security risks inherent in digital assets.