Economist Agustin Carstens, the general manager of the Bank of International Settlements, voiced a low opinion of cryptocurrencies in his first public speech since his appointment in December. He called on authorities to clamp down before they become further entrenched in the international financial system.
Speculative Mania, not a Currency
Speaking at Goethe University in Frankfurt, Carstens expressed his opinion that cryptocurrencies failed the “basic textbook definition” of what a currency was. He asserted that their recent prominence was due merely to “speculative mania,” and that they were overall “probably not sustainable as money.”
He derided bitcoin, in particular, calling it “a bubble, a Ponzi scheme and an environmental disaster,” stating that its fluctuating value rendered it an inadequate means of payment and value storage.
His speech did indeed come during an uncertain time for cryptocurrencies, which, despite flourishing last year, have dramatically dropped in value in recent months. Bitcoin alone has lost more than half its value since the beginning of the year, and more than two thirds since mid-December.
Also, Carstens expressed concern that cryptocurrencies provided an ideal means of facilitating tax evasion, money laundering, and various other illicit financial activities. He asserted that this added to what he called “a strong case for policy intervention.”
Carstens pressed that financial authorities must “educate and protect investors and consumers,” and thus should be in a position to take action.
Cryptocurrency Bypassing Banks
One of the most prominent appeals of cryptocurrency among its users is that it offers a means by which to bypass banks and government intervention when paying for goods and services. However, Carstens accused cryptocurrencies of freeloading on the trust provided by the overall financial system.
Carstens further argued that the central banks behave as “stewards of public trust” and thus could not allow “private digital tokens masquerading as currencies” to subvert this trust. He urged authorities to act before cryptocurrencies become more interconnected with financial systems, which, he asserted, could pose “a threat to financial stability.”
Carstens is far from the only high-profile figure in the financial world to express skepticism about the long-term sustainability of cryptocurrency.
Earlier in the month, economist Nouriel Roubini, best known for having foreseen the 2008 global financial crisis, cited the drop in bitcoin value as evidence that the cryptocurrency was a mere bubble. He characterized it as favored by “charlatans and swindlers,” its value allegedly destined to plummet “all the way down to zero.”
Likewise, the heads of a number of major banks – including JP Morgan’s Jamie Dimon, the European Central Bank’s Mario Draghi, and the Reserve Bank of Australia’s Philip Lowe – have echoed Carstens’ concerns about cryptocurrencies’ volatility and their potential use in illegal transactions.
This sentiment has, in some cases, extended beyond rhetoric. Many prominent banks – including the Bank of America, JP Morgan, and, most recently, Lloyds Banking Group – have banned their users from purchasing cryptocurrencies using the firm’s’ credit cards, fearing an upsurge in debt if their value were to drop any further.
The nation of China, meanwhile, aims to ban cryptocurrency trading entirely; and its central bank has severed all ties with both local and international cryptocurrency platforms.
Many speculate that this growing backlash against cryptocurrencies by major financial institutions – along with such factors as Facebook’s banning of cryptocurrency ads – has been a contributor to their dramatic drop in value.