The main pillars of today's cryptocurrency industry, stablecoins and DeFi, pose a threat to the world's central banks, according to the head of the Innovation Center at the Bank for International Settlements (BIS).
Decentralized finance is a set of cryptographic products that replicate many common services in traditional finance, such as loans, but replace banks and other centralized financial institutions with lines of code.
“Central banks have a job to do – provide price stability and financial stability – and they must maintain their ability to do so. The central bank's digital coins will take years to be released, while stablecoins and cryptographic assets are already here,” said the head of the BIS Innovation Center. “That makes it even more urgent to get started,” he added.
In a report published earlier this year, the BIS said that stablecoins "try to import credibility by being backed in real currencies". The report added that stablecoins "are only as good as the governance behind the pledge of support." However, the head of the Innovation Center believes that global stablecoins, DeFi platforms and big tech companies will challenge the banks' models anyway.
China at the forefront
China is predominantly seen as the world's leading nation when it comes to deploying a central bank digital currency.
China's digital yuan was first proposed in 2017 and entered the pilot phase in April 2020. Since October of last year, the People's Bank of China (PBOC) has sent millions of digital yuan to citizens across the country while testing the project.