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UPDATE 1-BIS official casts doubt on El Salvador bitcoin 'experiment'

Fri, 11th Jun 2021 11:45

(Adds more detail, Bailey)

By David Milliken and Huw Jones

LONDON, June 11 (Reuters) - El Salvador's decision to make
bitcoin legal tender is an "interesting experiment" with a
speculative asset that does not pass the test for being a
reliable means of payment, a senior global central banking
official said on Friday.

The central American country on Wednesday became the first
country in the world to adopt bitcoin as its national
currency, saying it would help Salvadorans living abroad send
remittances home.

"El Salvador, that is an interesting experiment indeed,"
said Benoit Coeure, head of the innovation hub at the Bank for
International Settlements (BIS).

"We have been clear at the BIS that we don't see bitcoin as
having passed the test of being a means of payments. Bitcoin is
a speculative asset and should be regulated at such," Coeure
said at the launch of a regulatory research hub at the Bank of
England (BoE).

The comments echo remarks from the International Monetary
Fund, which said on Thursday it had economic and legal concerns
regarding El Salvador's move.

El Salvador replaced its national currency with the U.S.
dollar in 2001.

Rapid advances in private sector electronic payments and the
reduced use of cash, accelerated by COVID-19, have forced
central banks to consider developing digital versions of their
own legal tender known as central bank digital currencies.

"We need to be at the cutting of technology," Coeure said.
"We have to work with the private sector."

The BIS is setting up a network of innovation hubs across
the world to allow central banks to share information on new
payments technology and keep up with private sector initiatives,
such as Facebook's Diem stablecoin.

Stablecoins are cryptocurrencies designed to have a stable
value relative to traditional currencies or a commodity such as
gold, to avoid the volatility that makes bitcoin and other
digital tokens impractical for most commerce.

BoE Governor Andrew Bailey said regulators were cooperating
closely over stablecoins' potential impact on financial
stability, and also on developing their own digital currencies.

"If this comes to pass, it will be one of the most
fundamental innovations in the history of central banking. It
will move us into a new era," Bailey said.

Earlier this week, financial regulators for major economies
proposed tough capital rules for banks holding cryptocurrencies,
and Bailey said any stablecoin-based payment system would need
to meet the same standards as banks.
(Reporting by David Milliken and Huw Jones
Editing by Mark Potter)

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