‘Young people: Stop trying to create money!’

This is the unlikely and yet perfectly serious message delivered by Agustin Carstens, head of the Bank of International Settlements (BIS), in a recent interview.

Here at Inferno, there are a handful of subjects we return to periodically because they are of fundamental importance to the health of the global crypto ecosystem. Tether is one; we believe that should USDT implode it would have a systemic impact on the crypto markets, just as the fall of MtGox did. (Whilst there have been many red flags over the past year, we believe that risk is now receding.)

Regulation is another, and with it, the attitude of the banking sector as a whole. And the attitude of the banking sector is interesting, not to say disparate.

Broadly speaking, the commercial banks are warming to crypto. They talk about ‘blockchain but not bitcoin’, but the reality is that there is money to be made in crypto and if their customers want to trade it, they will explore it – better offer it themselves than let their competitors get the commission fees.

Central banks don’t like cryptocurrency much, for all the reasons you’d expect. And then there’s the Bank of International Settlements, or BIS: the Central Bank for the world’s central banks. And the BIS really, really doesn’t like crypto.

Agustin Carstens, head of the BIS, has taken aim at bitcoin and crypto many times in his short time there. It appears he is making it his personal mission to warn people about the dangers of printing your own money, and urging everyone who will listen to stop them. The irony should be obvious.

Here are some key extracts from the interview:

Q: You delivered a speech on cryptocurrencies which generated a big echo among fans of Bitcoin. Are cryptocurrencies money?

A: No, they are not money; they are a form of investment, an asset. They cannot assume the functions of money for the simple reason of how they are created. Those who have the biggest incentive in the system of these so-called cryptocurrencies are those who produce the assets – the miners. By producing ‘money’, they wish to make a profit, and in return they deliver, as it were, the infrastructure that keeps cryptocurrencies going. This incentive, however, is not compatible with maximising the usefulness of money. Cryptocurrencies do not fulfil any of the three purposes of money. They are neither a good means of payment, nor a good unit of account, nor are they suitable as a store of value. They fail dramatically on each of these counts.

Q: So, how do you account for the hype surrounding them?

A: The hype came about because this was something completely new and because you could ostensibly make sure-fire profits in a short space of time. But if you look at them closely, cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster – the latter because of the high energy consumption needed to run the infrastructure for these cryptocurrencies.

Q: Which were precisely the words that annoyed the crypto-community. You don’t think there'll be a happy ending?

A: No, definitely not – no need to beat about the bush on that count. One mustn’t forget that central banks have been providing electronic means of payment for decades. In Switzerland, for example, the National Bank’s electronic payment system is top of the line. I can’t imagine something coming along any time soon that would be more efficient and generate the same level of trust.

And here’s the kicker:

‘Central banks are trusted, and that trust is something they have built up over decades and for which there is no substitute right now. Trust is a valuable commodity. It is easily destroyed, but winning it takes time. Money has become established. Young people should use their many talents and skills for innovation, not reinventing money. It’s a fallacy to think money can be created from nothing.’

Yep. The head of the central bank for central banks, which has responsibility for advising central banks on monetary policy – in other words, how they go about creating money from nothing – has warned the younger generation not to try creating money from nothing. Leave it to the trusted professionals, he says.

Put a pin in this. The head of the BIS – implicitly one of the most respected economists in the world – has said crypto will end badly, no question. We disagree. We’ll let history decide who’s right.

‘So my message to young people would be: Stop trying to create money!’

It’s kind of funny, when you think about it.

Read Carstens’ interview at https://www.bis.org/speeches/sp180704a.htm

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