Central Banks Face a Moment of Truth on Crypto

The head of the Bank for International Settlements, Agustin Carstens, recently set out a dark vision for our financial future, quoting Goethe’s “Faust” and claiming that the “soul” of money was at stake.

He warned that the proliferation of unregulated cryptocurrencies and the spread of Big Tech firms into payments risked damaging consumer trust and splitting the monetary system. To build a safer alternative, he said, central banks should issue digital cash, which would serve as a bedrock for private-sector payments technology while also curbing the industry’s rent-seeking excesses.

The most remarkable part of Carstens’ speech wasn’t his call for central-bank digital currencies (CBDCs) — the idea has been around for years — but rather his acknowledgment of the head-spinning pace of change in financial technology since the pandemic. Carstens nodded to the metaverse, to DeFi and to stablecoins, showing how rapidly things have moved since Meta Platforms Inc.’s Facebook announced its controversial and eventually aborted Libra currency project in 2019.

We are fast approaching a moment of truth for central banks’ ability to get a grip on their role in our crypto future. A record amount of pandemic-fueled venture capital was poured into digital assets last year. Yet central banks’ own plans for issuing digital currency, as the map above shows, have been ticking along very gradually. Most remain in the pages of technocratic reports or within laboratory experiments. A digital dollar or digital euro remains years away. Emerging markets, with less to lose, are moving quicker.