Trust is the missing link in today's cryptocurrencies, BIS says

Cryptocurrencies' model of generating trust limits their potential to replace conventional money, the Bank for International Settlements (BIS) writes in its Annual Economic Report (AER), a new title launched this year.

In a special chapter on cryptocurrencies, the BIS argues that the decentralised technology underpinning private digital tokens is no substitute for tried and trusted central banks. Today's cryptocurrencies become more cumbersome to use as the number of users increases, in contrast to conventional money, which works better the more people use it and trust it.

"Money has value because it has users," says Hyun Song Shin (video), Economic Adviser and Head of Research. "Without users, it would simply be a useless token. That's true whether it's a piece of paper with a face on it, or a digital token."

Towards a macro-financial stability framework

In another special chapter, on macroprudential frameworks, the BIS reports that authorities have made substantial progress since the crisis in tackling system-wide financial stability risks and in deploying a broad range of tools. Although the measures have so far focused mainly on banks, they should be extended to other financial players, including asset managers. Macroprudential frameworks strengthen the financial system's resilience; however, they have not, on their own, prevented dangerous financial booms.

"It is important to embed macroprudential measures into a broader, more holistic macro-financial stability framework. That framework includes not only prudential measures but also monetary, fiscal and even structural policies," says Claudio Borio (video), Head of the Monetary and Economic Department.

The BIS is introducing a revamped Annual Report, covering the Bank's activities and financial results in the past financial year. Its traditional commentary on the global economy will appear under the new AER banner.
Two special AER chapters are released on 17 June, followed by the full AER, and the Annual Report 2017/18, on 24 June.