"Crypto is a flawed system," the Bank of International Settlements (BIS) claims in its 2023 "Annual Economic Report" on June 20. It goes on to assert that cryptocurrencies cannot set the foundation for the future of money. The BIS brings up the fact that crypto is self-referential, i.e., it doesn't have intrinsic value, has "little contact with the real world," and lacks trust from the public, as opposed to – as the BIS suggests – central bank-issued fiat money.
The BIS notes that the gap between cryptocurrencies and national currencies has been partially filled by stablecoins that mimic the latter. Nevertheless, the institution seems to consider the last year's crypto nosedive as the ultimate proof of the failure of the cryptocurrency concept. It also calls central bank money "the real thing," regarding it as irreplaceable by decentralized cryptocurrencies.
On the other hand, the BIS praises tokenization as the key process enabling another major leap for the monetary system, following dematerialization (a euphemism for detaching money from underlying assets, such as gold, that provide it with value) and digitization. Tokenization is "the process of representing claims digitally on a programmable platform," which "can be seen as the next logical step in digital recordkeeping and asset transfer," the paper explains.
According to the BIS, tokenization could "dramatically enhance the capabilities of the monetary and financial system by harnessing new ways for intermediaries to interact in serving end users, removing the traditional separation of messaging, reconciliation and settlement." It can allow new types of economic cooperation and arrangements that have been unfeasible in the current monetary system.
Established in 1930, the BIS has earned the moniker of the bank of all banks. The institution is owned by 63 central banks representing countries that jointly account for ca. 95% of the world's GDP.
