Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 14, 2018. REUTERS/Dado Ruvic/Illustration/File Photo
Reuters - June 21, 2022

Recent implosions in the cryptocurrency markets indicate that long-warned-about dangers of decentralised digital money are now materialising, the Bank for International Settlements has said.

The BIS, the global umbrella body for central banks, sounded the warning in an upcoming annual report, in which it also urged more effort in developing appealing central bank digital currencies.

BIS general manager Agustin Carstens pointed to recent collapses of the TerraUSD and luna 'stablecoins', and a 70% slump in bitcoin, the bellwether for the crypto market, as indicators that a structural problem exists.

Without a government-backed authority that can use reserves funded by taxes, any form of money ultimately lacks credibility."

"I think all these weaknesses that were pointed out before have pretty much materialised," Carstens told Reuters. "You just cannot defy gravity... At some point you really have to face the music".

Analysts estimate that the overall value of the crypto market has slumped more that $2 trillion since November as its troubles have snowballed.

Reuters Graphics

Carstens said the meltdown was not expected to cause a systemic crisis in the way that bad loans triggered the global financial crash. But he stressed losses would be sizeable and that the opaque nature of the crypto universe fed uncertainty.

"Based on what we know, it should be quite manageable," Carstens said. "But, there are a lot of things that we don't know."

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