Crypto not a threat to traditional monetary system, say experts

Singapore

These were some of the conclusions from a workshop involving academic researchers, central bankers, and financial industry practitioners, as reported in a special feature in Friday's Monetary Authority of Singapore (MAS) macroeconomic review.

The event was held by MAS's Economic Policy Group, the Asian Bureau of Finance and Economic Research, and the National University of Singapore Business School in November.

On whether private digital currencies could replace traditional money, the participants considered money's roles as a means of payment, a unit of account, a store of value, and a standard for deferred payment.

Cryptocurrencies were "found wanting", said the report: "The value of private digital currencies is too volatile to serve as a meaningful unit of account and store of value." They are also unlikely to affect monetary policy as, historically, only countries with very high inflation have seen large-scale currency substitution. In addition, central banks are key as a lender of last resort, and a uniform national currency is more efficient.

As for central banks issuing their own digital currencies, speakers noted that such CBDCs would have "grave financial stability implications", competing with private banks' low-cost deposits, raising the banking system's risks, and possibly making bank runs more likely and severe.

Some central bankers at the workshop suggested a digital payment infrastructure that relies on a mix of public and private entities instead.

Nonetheless, while cryptocurrencies are not about to replace current monetary systems, the distributed ledger technologies (DLT) that power them have other applications.

Such technology allows transactions and data to be encrypted and digitally distributed across a network, without the need for a central party.

DLT-based payment systems can thus "bolster financial system resilience by eliminating central points of failure", said the report. For instance, if a traditional commercial payment system suffers a cyberattack, all transactions in that system may be rendered void. A DLT-based system does not run that risk.

"Central banks, including MAS, are already working on concrete applications of DLT to clear international payments, for example," said the report.

"The workshop saw widespread interest in exploring further how the new technologies might make existing payment systems more efficient."

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