BIS Urges Central Banks to Act: Stablecoins, DeFi Challenge Traditional Finance, CBDCs Offer Last Hope

The head of the Bank for International Settlements (BIS) Innovation Hub called on central banks around the world to take immediate action on cryptocurrencies and the DeFi sector during a public speech last week, stating, "The introduction of CBDCs will take several years, while stablecoins and crypto assets are already here, making time more pressing."

Benoit Coeure, head of BIS Innovation, spoke at the Eurofi Forum for European financial services last Friday, claiming that stablecoins, DeFi, and fintech payment innovations are challenging traditional financial systems, urging countries to accelerate their efforts and develop CBDCs to address the digital future. Speech

The Financial System is Changing Before Us

Coeure stated that large tech companies are expanding their retail payment businesses, stablecoins are seeking regulatory approval, and DeFi continues to challenge traditional financial intermediaries, which he expressed concerns about:

Stablecoins may develop into closed ecosystems or "walled gardens," while DeFi protocols may pose risks to the collateral assets behind stablecoins, potentially causing a chain reaction that spreads throughout the system. Additionally, the expanding business activities of large tech companies in the financial sector are giving rise to market power and privacy issues.

He raised the following questions:

• Will these new market participants complement or replace banks?
• How should public and private currencies coexist in the new ecosystem?
• Should CBDC be used more in DeFi compared to private stablecoins?

He emphasized that this is the long-term future of the financial system, rapidly approaching, and central banks around the world urgently need to understand these issues, with CBDC being part of the solution.

CBDC is the Hope for Preserving Traditional Finance

He mentioned that banks may be concerned about the impact of CBDC on public deposits, but a well-designed CBDC can serve as a secure, neutral payment and settlement method. In addition to achieving an open financial architecture, it can also integrate seamlessly in the face of competition and innovation.

Coeure believes that central banks have been slow to react, missing the timing for action. Therefore, central banks worldwide must intensify efforts to develop CBDCs and focus on designing the details to achieve pricing and financial stability capabilities. He stated:

The ultimate goal of CBDC is to preserve the best elements of the current financial system while also providing a safe space for future innovations. Therefore, central banks need to take action immediately while the system is still intact.