Economies Need Central Bank Digital Currencies More Than Bitcoin

While investors in Bitcoin and other cryptocurrencies may disagree, when it comes to digital money, central banks have the right stuff.

That is according to the Bank for International Settlements (BIS), which has put its stamp of approval on central bank digital currencies (CBDCs) as it urges those institutions to pick up the pace.

Central banks are perfectly placed to offer “settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy,” which needs to be designed “with the public in mind,” the global banking regulatory body argued in a study released on Wednesday.

A form of digital money, CBDCs are denominated in the national unit of account, which is a direct liability of that central bank. According to PwC, more than 85% of central banks are currently investigating digital versions of their currencies, with China now in the lead.

The spotlight has increased on digital currencies this year, largely due to the popularity of Bitcoin, which the BIS again criticised, as it brandished cryptocurrencies as speculative assets used at times for financial crimes and ransomware. “Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint,” it said.

Cryptocurrency risks have been evident this year, as Bitcoin has taken investors on a wild ride, with prices down more than 50% from an all-time high of over US$64,000 reached in mid-April.

Neither are stable coins going to work as digital money, said the BIS, describing those as “ultimately only an appendage to the conventional monetary system and not a game changer.”

The BIS’ fresh urgency to get central banks moving comes amid its concerns that Big Tech could get there first as it muscles into financial services. And user data in existing technology businesses such as social media or e-commerce offer those companies a competitive edge. That can lead to a so-called “data-network-activities” loop that creates a vicious circle of “data silos, market power and anti-competitive practices,” it warned.

Left in the hands of central banks, though, CBDCs “could form the backbone of a highly efficient new digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID,” it said.

Of course, international collaboration will be paramount, the BIS added. Federal Reserve Chair Jerome Powell in May promised his central bank would take the lead in “developing international standards for CBDCs.”

China’s securities regulator is ramping up support for the country’s embattled equities markets, announcing measures to funnel capital into Chinese stocks.

The aim: to draw in more medium to long-term investment from major funds and insurers and steady the equities market.

The latest round of policy boosts comes as Chinese stocks start the year on a soft note, with investors reluctant to add exposure to the market amid lingering economic woes at home and worries about potential tariffs by U.S. President Trump. Sharply higher tariffs on Chinese exports would threaten what has been one of the sole bright spots for the economy over the past year.

Thursday’s announcement builds on a raft of support from regulators and the central bank, as officials vow to get the economy back on track and markets humming again.

State-owned insurers and mutual funds are expected to play a pivotal role in the process of stabilizing the stock market, financial regulators led by the China Securities Regulatory Commission and the Ministry of Finance said at a press briefing.

Insurers will be encouraged to invest 30% of their annual premiums earning from new policies into China’s A-shares market, said Xiao Yuanqi, vice minister at the National Financial Regulatory Administration.

At least 100 billion yuan, equivalent to $13.75 billion, of insurance funds will be invested in stocks in a pilot program in the first six months of the year, the regulators said. Half of that amount is due to be approved before the Lunar New Year holiday starting next week.

China’s central bank chimed in with some support for the stock market too, saying at the press conference that it will continue to lower requirements for companies to get loans for stock buybacks. It will also increase the scale of liquidity tools to support stock buyback “at the proper time.”

That comes after People’s Bank of China in October announced a program aiming to inject around 800 billion yuan into the stock market, including a relending program for financial firms to borrow from the PBOC to acquire shares.

Thursday’s news helped buoy benchmark indexes in mainland China, with insurance stocks leading the gains. The Shanghai Composite Index was up 1.0% at the midday break, extending opening gains. Among insurers, Ping An Insurance advanced 3.1% and China Pacific Insurance added 3.0%.

Kai Wang, Asia equity market strategist at Morningstar, thinks the latest moves could encourage investment in some of China’s bigger listed companies.

“Funds could end up increasing positions towards less volatile, larger domestic companies. This could end up benefiting some of the large-cap names we cover such as [Kweichow] Moutai or high-dividend stocks,” Wang said.

Shares in Moutai, China’s most valuable liquor brand, were last trading flat.

The moves build on past efforts to inject more liquidity into the market and encourage investment flows.

Earlier this month, the country’s securities regulator said it will work with PBOC to enhance the effectiveness of monetary policy tools and strengthen market-stabilization mechanisms. That followed a slew of other measures introduced last year, including the relaxation of investment restrictions to draw in more foreign participation in the A-share market.

So far, the measures have had some positive effects on equities, but analysts say more stimulus is needed to revive investor confidence in the economy.

Prior enthusiasm for support measures has hardly been enduring, with confidence easily shaken by weak economic data or disappointment over a lack of details on stimulus pledges. It remains to be seen how long the latest market cheer will last.

Mainland markets will be closed for the Lunar New Year holiday from Jan. 28 to Feb. 4.

Economies Need Central Bank Digital Currencies More Than Bitcoin

According to a global banking watchdog.

The latest round of policy boosts comes as stocks start the year on a soft note