A new annual economic report from the Bank for International Settlements (BIS) says that about 90 percent of central banks worldwide would consider whether they can introduce a central bank digital currency (CBDC).
The BIS report highlighted that the current state fiat money provides relative price stability and is regulated. On the other hand, it is criticized that cryptocurrencies do not fulfill “basic functions of money” and they are not transparent in terms of accountability to the public.
However, the report also highlighted the programmability of cryptocurrencies as well as the limitless elements of decentralized finance (DeFi) as potential advantages that would speak in favor of integration with CBDCs. There are currently three retail CBDCs with 28 pilot projects currently underway. The digital yuan of the Central Bank of China is currently in 1st place with 261 million users. In addition, there are fast payment systems tailored to the masses in over 60 countries.
According to the BIS, one argument in favor of the use of centralized digital assets is the recent negative developments in the DeFi sector. As an example, the report mentions the collapse of Terra (LUNA) and the algorithmic stablecoin Terra USD. The BIS also pointed out the limited scalability on certain blockchains, such as Ethereum (ETH), which leads to an overload of the network and, as a result, a sharp increase in transaction fees.
It also raises the question of how practical layer 1 solutions are. These are considerably fragmented in order to compensate for these disadvantages. In conclusion, the report also referred to the many cryptocurrency hacks over the past year that would indicate inherent security risks in digital assets.
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