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BIS Changes Opinion on Crypto, Eyes Digital Currency Issuance

BIS Changes Opinion on Crypto, Eyes Digital Currency Issuance

Augustus Cartens, the General Manager of the Bank of International Statements (BIS), appears to have taken a reverse in his outlook of digital currencies. In an interview with Financial Times on 30 June, Cartens seemed to have become pro crypto when he said that he supported cryptocurrencies. He actively endorsed the issuance and usage of digital fiat currencies in everyday transactions. He said:

“Many central banks are working on it; we are working on it, supporting them, and it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies.”

However, these statements of his took many by surprise as a year ago Cartens was known to be an active critic of digital currencies. He called the concept of digital currencies a Ponzi scheme and a disaster to the environment as crypto mining requires high energy consumption and infrastructure. He believed that the increase in accessibility of transferring funds could potentially destabilize the system and condemned the activity of people “creating new money”.

He said that banks would be under various risks if they considered the introduction of cryptocurrencies, citing that innovation should not come very fast. BIS also outspokenly criticized Facebook’s Libra, stating that it involves the transfer of money beyond the control of government authorities.

As reported in March, Carstens stated that there was no necessity for a state-backed cryptocurrency and that for most countries “cash is still in high demand”. This change in opinion in the course of such a short span of time speaks volumes about the kind of effect digital currencies have on big financial institutions.

 

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Fintech Deals Hit Record $117 Billion So Far This Year

The last five years have seen a rapid increase in global fintech-targeted mergers and acquisition volume, leading to a record high of USD 116.6 billion in 2019, according to research firm Dealogic.

Business Insider quotes Dealogic associate Chisa Tanaka who says that 87 deals this year have resulted in a four-fold increase from the USD 31.8 billion from 89 deals at the same time in 2018:

“Clearly, technological innovation is causing intensifying consolidation in the electronic payment services market, while the acquisition of data on customer’s purchasing and behavior trends further drives fintech acquisitions.”

Three fintech acquisitions from the USA have been the driver of this year’s record-setting period: Fidelity National Information Services’ USD 43.3 billion March purchase of Worldpay, Fiserv’s January acquisition of First Data for USD 39.4 billion, and Global Payments’ USD 26.2 billion May buy of Total System Services.

All of these feature a cashless method with electronic payments at the heart of their solutions. But while they are growing in use and popularity, experts think we have a long way to go from cashless societies, especially in emerging economies.

The Bank of International Settlements (BIS), for example, published a report in March that shows flat growth for ATM withdrawals in advanced economies but rising trends in emerging markets. Overall, it said, global consumers were relying “more and more” on e-payments:

“The use of e-payments is booming and technology companies as well as financial institutions are investing heavily to be the payment providers of tomorrow… [but there is] scant evidence of a shift away from cash… As the appetite for cash remains unabated, few societies are close to ‘cashless’ or even ‘less-cash’.”

France and the UK are not far behing the US in terms of fintech deals. Tanaka did say that the latter half og 2019 will make clear the “financial ability of the different players”.

 

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ECB Official Says Central Bank Crypto Could Positively Impact Financial Stability

ECB Official Says Central Bank Crypto Could Positively Impact Financial Stability

A Member of the Governing Council for the European Central Bank (ECB) has spoken positively about central bank crypto or central bank digital currencies (CBDC), labeling them as unique and more efficient offerings from global central banks.

Vitas Vasiliauskas specifically names distributed ledger technologies (DLT) as useful for having positive impacts on financial stability and mitigating the need for intermediaries, although did not extend these thoughts to decentralized cryptocurrency like Bitcoin, insisting that they were very different from central bank crypto.

He explained:

“The CBDC would be a novel type of central bank money. Although also digital, it should be distinguished a traditional reserve account. The CBDC would also be fundamentally different from private crypto assets. This is because it would be — money! It would serve as a medium of exchange, a means of payment and a store of value, just like the current forms of central bank money.”

He praised the characteristics of DLT features in would-be implementations of central bank crypto, saying that “wholesale CBDC” could enhance payments and make securities settlement more efficient, while reducing counterparty credit and liquidity risks. He elaborated:

“In terms of the retail CBDCs, different motivating factors are in play. Clearly, we live in an age characterized by the rise of electronic payment methods. Although these are often more convenient and efficient than paper banknotes, such digital payment solutions are based on commercial bank money.”

Vasiliauskas, who is also the chairman of the board for the Bank of Lithuania and a member of the Board of Governors of the International Monetary Fund, had made these comments at a central banker conference in Washington this week. The Bank of Lithuania falls under the purview of the Bank for International Settlements (BIS).

Last year, BIS made comments against the industry, when general manager Agustin Carstens, told cryptocurrency developers that they should leave the bankers to do the job of creating money.

 

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BIS Chief Makes Case Against State-Issued Crypto

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The Bank of International Settlements (BIS) General Manager, Agustin Carstens this week made it clear that he is against central bank-issued cryptocurrencies.

Speaking at the Central Bank of Ireland’s annual Whitaker Lecture, Carstens claimed that “for most countries, cash is still in high demand” so there is not necessarily a desire for it to be replaced by a state-backed cryptocurrency. He added that consumers would not notice a great difference even if it was instated, except that all payments would be made digitally.

Appearing to contradict himself, Carstens stated that “only a very few central banks think it is likely that they will issue a central bank digital currency” while asserting as well “about 70 percent [of central banks are] either exploring or experimenting with so-called central bank digital currencies.”

Also criticized by the BIS chief, was the supposedly chaotic move from a two-tier system that sees customers dealing directly with commercial banks, to a one-tier system where customers hold accounts with the central bank.

It is important to note that Carstens’ organization BIS profits from international payments- a service heavily challenged by the efficiency of cryptocurrency in doing the same act.

 

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Crypto Could Break Internet: Is the Bank for International Settlements Mistaken?

The Bank for International Settlements (BIS) has released a paper titled ‘Cryptocurrencies: looking beyond the hype’., in which it lists scaling concerns over widespread adoption of cryptocurrencies, including possibly bringing “the internet to a halt” due to the tremendous amount of data that would be transferred by millions of users downloading swollen blockchains.

Essentially, BIS concludes that blockchains might work well for relatively small transaction frequencies but if they become a primary means for payments globally, then blockchain sizes would quickly grow to terabytes, using up too much internet bandwidth. The paper believes that if cryptocurrency processed as many transactions as other retail payment systems like Visa and MasterCard, then the blockchain would be too big to store in a smartphone within days, too big for a personal computer within weeks, and too big for a server within months.

BIS foresees that only supercomputers would be able to download and process the entire blockchain, but even then users would be transferring so much data and using so much bandwidth that it could congest the internet.

It appears to be an exaggeration, considering that the entire Bitcoin blockchain is 170 GB, and this includes all of the transactions over the last nine years since Bitcoin launched in 2009. This is easily downloadable by a personal computer.

Even so, the paper does not seem to recognize, however, that users do not necessarily need to use full node clients that download the entire blockchains, with lightweight clients such as simplified payment verification (SPV) wallets sufficient to perform transactions. It also does not consider second-layer networks currently in development, such as Bitcoin’s Lightning Network that would take transactions off-chain, possibly surpassing Visa’s transactional speed and capacity, without the data bloat.

BIS brought up other downsides, saying cryptocurrency is slow and consumes lots of energy. Again, this is not necessarily true, and it appears that some data used by BIS is outdated, leaving out recent scaling developments in major cryptocurrencies such as Bitcoin and Ethereum.

Despite the mostly negative content of the report, BIS said the underlying blockchain-based distributed ledger technology showed promise for other applications like cross-border payments and faster settlement execution via smart contracts.

 

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Science Research Marketplace to Use Blockchain for Pharmaceutical Data Security

Scientist.com, the popular online marketplace for research services, has revealed that is about introduce a blockchain-powered platform designed to track and protect pharmaceutical data.

The new program, Data Smart, will be the site’s first foray into using blockchain applications which provide tracking and protection of medical data. It is a sector which is beginning to entice companies looking to apply blockchain as a replacement for current systems which are fast becoming outmoded.

Online market researcher BIS Research estimates that blockchain in healthcare will reach over USD 5.6 billion by 2025, and some of the biggest beneficiaries of this technology will be pharmaceutical companies, which lose an estimated USD 200 billion to counterfeit drugs each year.

Data from Statista.com shows that in 2017, only 15% of healthcare applications stated their intent to adopt blockchain for commercial deployment, although 50% were still undecided.

Companies such as Pfizer, BlockRx, and Genetech now use the technology to improve security, while more recently, DHL and Accenture have linked to create their own blockchain-based prototype in March to “track pharmaceuticals across the supply chain”.

Data Smart will do exactly this, ensuring “the integrity of information”, stated Scientist in their press release, “In biopharma research, we need blockchain technology to verify and validate the supply chain and to ensure the integrity of research data.”

Another hurdle that Data Smart will overcome is the cost and time adhering to current regulations, which will now be overcome by validating the integrity of the supply chain. Scientist maintains that the application will help to reduce the current pressure being put on biopharma businesses, due to strict US data regulations.

Currently, a number of healthcare institutions are successfully using blockchain technology around the world, ranging from constant tracking in clinical trials, healthcare information, and pharma supply chain solutions.

Dr Christina Czeschik, a physician and specialist in medical informatics argues that there are “few other industries in which so many different viewpoints and agendas need to be reconciled to achieve a common goal” – which, in this case, is good patient care.

image source: https://pixabay.com/en/pill-capsule-flying-many-horde-1884777/ – qimino

 

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