Agustin Carstens (general manager of Bank of International Settlements) gave a speech titled “Digital currencies and The Soul of Money” in which he criticized decentralized finance (DeFi) and private stablecoins. He argued that central bank-led financial innovations are the best path to the future of money.
Carstens, who was the Bank of Mexico’s governor between 2010 and 2017, spoke at the conference “Data, Digitalization, the New Finance and Central Bank Digital Currencies – The Future of Banking and Money” held at Frankfurt’s Goethe University.
The economist’s argument was centered around the institutional foundations for money and how they can still provide trust in money, and “an efficient and inclusive financial systems to the benefit of everyone.”
Carstens presented three possible scenarios for financial innovation to support his argument. He envisioned two scenarios of financial innovation. One, where central banks run the global monetary system. The other is where stablecoins powered by big tech are the dominant form. And, another in which the majority of financial activity runs on distributed ledgers.
Carstens stated that the stablecoin scenario is fraught by market power and data concentration in the hands of a few dominant private-money issuers. The disintermediation and fragmentation of existing banks could lead to financial instability.
The DeFi boss at the BIS claimed that DeFi applications were not delivering the foundational principles for disintermediation. Carstens said:
“The DeFi space has been used primarily to speculate. In a highly unregulated environment, users can borrow, trade and invest in crypto assets. One important factor for DeFi’s growth is the absence of controls like Know Your Customer (KYC), and Anti-Money Laundering rules.
Carstens also stated, echoing recent BIS claims, that DeFi is “a lot centralized.” He also mentioned liquidity mismatches and scaling issues as problems with decentralized finance.
Central banks are central to the financial system and facilitate innovation, such as the creation of a global network CBDCs. This is the vision of the monetary futurity that economist extolled. Carstens says central banks will act in the public’s best interests because they aren’t profit-driven.
These statements are not surprising when made by the chief officer of an institution often called a bank for central banking. Cointelegraph previously reported that the BIS’ innovation arm actively participates in several CBDC trials. This includes the cross-border settlement initiative, which was jointly run by the central banks of France, and Switzerland.