Central bankers see limited role for crypto in reserve operations

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Central bankers are sceptical that bitcoin and other cryptocurrencies will supplant gold as a safe store of value but are upbeat on the prospects for official digital tokens as authorities grapple with how to respond to the crypto boom.

Almost 85 per cent of reserve managers say they do not expect cryptocurrencies to replace the precious metal in their foreign currency reserves, according to an annual UBS survey of 30 leading central banks.

More than a quarter of respondents said bitcoin and its peers had investment potential as uncorrelated assets that do not move in tandem with other markets, but 57 per cent of officials said they did not expect cryptocurrencies to have a meaningful impact on their reserve operations, according to UBS.

The cautious sentiment among central bank officials comes as the cryptocurrency industry has boomed in recent years, and prompted official institutions to more seriously consider how to regulate these assets and to what extent they should play a role in their operations.

Many cryptocurrency advocates view digital tokens as a way of preserving the value of their savings at a time when central banks around the world have launched massive stimulus programmes to combat the pandemic, which has prompted fears of a period of higher inflation.

However, the intense volatility of many coins has kept large swaths of mainstream investors away from the asset class and has eroded its appeal as a stable store of value, according to investors and analysts.

While central bank officials have doubts over private cryptocurrencies, they are growing more certain over the prospect for official coins, or central bank digital currencies.

About 60 per cent of central bank reserve managers polled by UBS said they expected at least one G7 central bank to make digital currencies directly available to consumers within the next half decade. More than 80 per cent said they expected “wholesale” central bank coins, which would be made available to large financial institutions, to launch over the period.

The officials said two of the key motivations for pursuing central bank digital currencies was to enhance the retail payment system and upgrade the broader financial infrastructure, including key functions such as clearing and settlement. They also said these central bank coins could help reduce crime and money laundering, according to UBS.

China is one of the world’s leaders in central bank-backed tokens, with its digital yuan already in a trial stage at a time when key central banks elsewhere are only exploring similar projects.

In traditional financial markets, reserve managers flagged high debt levels in the global economy as a key risk as well as a failure to put an end to the pandemic. The study also highlighted the continuing rise in the share of the Chinese renminbi in reserves, which Massimiliano Castelli, one of the authors of the UBS report, said could hit up to 15 per cent of holdings in the next decade.

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Fonte Notícia