Digital currencies could disrupt the ability of central banks to exercise control over the economy or issue money should the technology scale, the Bank for International Settlements (BIS) said in a new report released today.

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Steven L.
Rhyner
BIS: Digital Currencies Could Disrupt Central Banking Model
Digital currencies could disrupt the ability of central banks to exercise control over the economy or issue money
should the technology scale, the Bank for International Settlements (BIS) said in a new report released today.
The BIS, a financial entity cooperatively owned by the world’s central banks, said that it has been looking at the
technology as early as November 2013, and in February of this year the Committee on Payments and Market
Infrastructures (CPMI) asked a working group to draft the report it published today.
The report outlines how digital currencies like bitcoin as well as its underlying decentralized ledger, the blockchain,
could impact central banks and the broader global financial system.
While stressing that such outcomes are incumbent on “widespread adoption”, the BIS paints a possible future in
which its ability to conduct monetary policy, assess the flow of money or even generate revenue on the currency it
issues becomes limited.
As the report notes:
“A widespread substitution of banknotes with digital currencies could lead to a decline in central bank
non-interest paying liabilities. This, in turn, could lead central banks to substitute interest paying
liabilities, reduce their balance sheets, or both. The result could be a reduction in central bank
earnings that constitute central bank seigniorage revenue.”
The ability of central banks to gather data on money aggregates, or measurements of the money supply, could also

2. be hampered should digital currency use become widespread.
“Significant expansion of digital currencies could also raise a number of technical issues regarding the appropriate
definition of monetary aggregates, especially if the digital currencies were not denominated in the sovereign
currency,” the report notes. “In a monetary policy regime heavily focused on the growth of monetary aggregates, such
measurement difficulties could create some complications for monetary policy implementation.”
Some of the report’s conclusions echo
past work from the BIS, which in
October 1996 published a report on
the emergence of electronic money
schemes. In particular, the new report
points back to speculation on what could occur if banknotes are replaced by digital forms of money.
“As discussed in depth in the 1990s, the effect of digital currencies on the implementation of monetary policy will
depend on the change in demand for bank reserves,” the report states. “If the substitution is large and the
interconnection is weak, then monetary policy may lose efficacy.”
Government-issued digital currency
On the subject of whether central banks should consider issuing their own currencies based on a distributed ledger,
the BIS went so far as to acknowledge that some functions of a central bank could be rendered obsolete.
“The emergence of distributed ledger technology could present a hypothetical challenge to central banks, not through
replacing a central bank with some other kind of central body but mainly because it reduces the functions of a central
body and, in an extreme case, may obviate the need for a central body entirely for certain functions,” the report’s
authors state.
Specifically, there may be no need for a central bank to issue currency if a distributed ledger is backing a widely used
digital money, says the BIS.
“In some extreme scenarios, the role of a central body that issues a sovereign currency could be diminished by
protocols for issuing non-sovereign currencies that are not the liability of any central institution,” the report states.
The full BIS report can be found below:
Committee on Payments and Market Infrastructures Digital currencies
Re-posted from www.coindesk.com November 23, 2015 by Stan Higgins
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