LONDON (Reuters) – El Salvador’s decision to make Bitcoin legal tender is an “interesting experiment” with a speculative asset that fails the test as reliable means of payment, a senior global central bank official said Friday.
The Central American country became the first country in the world to adopt Bitcoin as its local currency on Wednesday and said it would help Salvadorans living abroad send remittances home.
“El Salvador is indeed an interesting experiment,” says Benoit Coeure, head of the Bank for International Settlements (BIS) innovation center.
“We have made it clear at the BIS that we do not regard Bitcoin as a means of payment. Bitcoin is a speculative asset and should be regulated as such, ”Coeure said at the opening of a regulatory research center at the Bank of England (BoE).
The comments echo the remarks made by the International Monetary Fund, which on Thursday said it had economic and legal concerns about the move from El Salvador.
In 2001, El Salvador replaced its local currency with the US dollar.
Rapid advances in electronic payments in the private sector and the reduced use of cash accelerated by COVID-19 have forced central banks to consider developing digital versions of their own legal tender, so-called central bank digital currencies.
“We have to be at the forefront of technology,” said Coeure. “We have to work with the private sector.”
The BIS is setting up a network of innovation centers around the world to enable central banks to share information on new payment technologies and to keep up with private sector initiatives such as Facebook’s stablecoin Diem.
Stablecoins are cryptocurrencies that are designed to have a stable value compared to traditional currencies or a commodity like gold in order to avoid the volatility that makes Bitcoin and other digital tokens impractical for most trading.
BoE Governor Andrew Bailey said regulators are working closely together on the potential impact of stablecoins on financial stability, as well as developing their own digital currencies.
“When this happens, it will be one of the most fundamental innovations in central banking history. It will take us into a new era, ”said Bailey.
Earlier this week, major economies’ financial regulators proposed strict capital requirements for banks holding cryptocurrencies, and Bailey said that any stablecoin-based payment system must meet the same standards as banks.
Reporting by David Milliken and Huw Jones, Editing by Mark Potter